Why I Shifted Focus from Flipping to Long-Term Rentals

As for flipping houses, I agree it’s a tricky topic. I’ll share my experience, and I’ll keep it brief since it’s both complex and extensive.

I’ve done about 90 flips in my career. Out of the first 80, about 10 just broke even, 20 had amazing returns, and the rest were good. So, overall, it was financially worth it—until the last 10, which were a bit of a disaster.

In 2018, for several reasons, I decided to stop flipping houses and focus on traditional long-term rentals. I’ve been adding tweaks and improvements to maximize even the simplest rental program.

Here are a few challenges I found with flipping:

1. Contractors: When flipping houses, you often have to deal with general contractors and subcontractors, who can be hard to work with. Finding someone who does quality work, on time, and within budget is nearly impossible. Plus, they often see you as the enemy, trying to exploit them. I’ve tried different types of agreements
   (or partnerships), but none worked out. These people know they have leverage, and switching contractors during the project usually leads to more delays and issues.

2. Scope of Work: Smaller flips with smaller profits are easier to manage but still require a lot of time and effort. After a few, you might wonder if all the hassle is worth it for the profit, which isn’t guaranteed. Naturally, you might want to move to bigger projects with bigger profits, but larger projects involve more people, more complexity, and higher chances of things going wrong. When you quadruple the rehab budget, you don’t just quadruple the complexity—you multiply it by 16.

3. Taxes: Even if your flip is successful, the IRS will take a big chunk in short-term capital gains. So, after all your hard work, you’ll have to give up a significant portion of your profits. The IRS is also there when you lose, but that’s not much comfort.

Everything I’m sharing is from my own experience, not just hearsay. Of course, there are other factors, but these are the big ones.

If you’re juggling a flip with a job, family, and life, it can be tough to give your project the attention it needs without neglecting other parts of your life.

I’ve found it more financially rewarding to buy nice rental properties and rent them out. If that’s not satisfying enough, I look for properties where I can add value, like updating an old house or finishing a basement. These projects are much simpler and don’t involve short-term capital gains tax.

I hope this is helpful, and if you decide to flip, I hope you take steps to avoid the many pitfalls. Feel free to reach out if you want to discuss working with us on traditional long-term rental property investments. Either way, I wish you the best of luck with your investments!