In recent months, I have been enjoying watching a few of the reality television real estate flipping shows.
There seems to be an endless supply of them coming out of the US, and let’s face it, who doesn’t love Chip and Joanna Gaines from Waco and their Fixer Upper show.
With all of these shows there are some key things you need to understand before you start thinking. ‘well if Chip can do it, anybody can, right?’
Now I don’t want to discourage you from getting involved in real estate, far from it…
However, there are some key points you need to understand about these shows before you quit you day job and think you can build a living from flipping real estate making massive profits every couple of months.
Reality Television Truths
As you may know, I am a big fan of education when it comes to money and investing for your financial future.
So the first cautionary suggestion I have is to view these reality television shows for what they really are, entertainment.
Again, Chip and Joanna are just down right funny. They make the process look so much fun and Chip is always doing something to make everyone laugh. It’s great entertainment…
But it’s not necessarily great education.
Due to the time constraints of reality television, significant components of the process are omitted. I get that, watching the settlement period of several weeks, or the legal process would be boring television.
But these are key considerations when it comes to making money. Knowing how long you need to finance a transaction before money flows back to you is something you and your bank need to understand.
The second truth is to understand that the entertainment value is aligned with the positive outcome.
Reality television wouldn’t be as ‘entertaining’ if the outcomes were negative or even just above breakeven.
There is a reasonable expectation of the viewer that each of these shows is going to result in a great financial outcome, and guess what, they always do…
But the real world of real estate flipping is not always that easy. There are plenty of examples of where people have tried and failed at flipping for significant profits.
So why am I being such a negative nelly?
Simply, what I want to do is highlight some of the key aspects of flipping real estate for profit that reality television programmes gloss over or, dare I say it, manipulate.
4 Flipping Reality Television Cautionary Truths
As an astute investor, you already know that it all comes down to the numbers.
When you are considering any investment the numbers are what determines whether it is a good investment or not. One you take or one you pass on.
When I’m watching these shows I always concentrate hardest on the fleeting time they spend on the numbers. Yes I know, of course I do…
It always worries me when they say they can do a full kitchen or bathroom for under $10,000. Especially when they turn out looking like the penthouse of a five star hotel.
And then there are the costs that are just completely ignored.
Like your holding costs, legal fees, search fees, inspections, and taxes to name just a few.
These are all important numbers to know and include in the calculations of your projected or actual profit.
Without trying to be too cynical, this may just be manipulation, thinking this is easy and profits are plentiful.
Buyers are crucial to success when flipping real estate, obvious statement, I know.
Reality television portrays that there is never a shortage of buyers. Just complete the renovation, advertise and they will come.
But what if that isn’t the case? Sure in the current economic climate it has been easier to attract buyers, due in most parts of the world, to incredibly low interest rates.
However, it is important to do your research. You need to know your market, understand what buyers will want and ensure that the renovation you do meets the market demand.
I have heard many stories of people who have undertaken renovations based on what they like and totally ignored the potential buyers and what they want.
One in particular I recall from a number of years ago now where the renovation included a cement benchtop in the kitchen in an inner city location. It was trying to be ‘trendy’, when the buyers were more interested in practical and easy to clean.
Research your potential buyers and renovate to what they will like!
Get Rich Quick
I hate the spruikers of get rich quick schemes as much as anybody does.
Unfortunately, flipping reality television gives you the impression that it is quick and easy.
Real estate is a time consuming process…
It takes time to locate the right property, buy it, settle and then renovate, market, sell and settle again.
Since this is the boring stuff, it makes sense to exclude it from the show.
But by excluding it, the show gives you the impression that everything can be done quickly. This just fuels the get rich quick mentality and creates a false impression of reality.
Modern society is constantly looking for the magic pill. Look at the health and fitness market. Everyone wants the quick fix, ‘how to lose weight in weeks’, ‘how to build six pack abs in minutes per day’.
This mindset is dangerous when it comes to your financial future.
There is money in flipping real estate, no doubt, but be mindful that it is a process that takes time and effort.
Lastly, it always seems that the flippers in these shows know everything about what needs doing or how to do it.
If you are anything like me, that just is not the case.
Many trades go into building or renovating a house. They are specialist skills…
If you haven’t spent time doing these skills, then you are either going to take a lot longer to complete them, or you are going to need extra help.
Over time, with some practice you will take on more yourself and become proficient in skills you never knew you had. Until then, know your limits and spend some money in the areas that you really should use someone who knows what they are doing.
The upside is that you can make money flipping real estate. As your investing skills progress I highly recommend you consider taking on a flipper.
Flipping real estate is one way to build another income stream, which when it comes to your financial future, is a key component.
However, before you tell your boss to stick their job and storm out, because you watch Chip and Joanna do it, know the realities and limitations of flipping reality television.
Let me know your experience with flipping real estate, leave me a comment below.
P.S. I really do love Chip and Joanna, their show is great entertainment!