“It’s speculation—just like the stock market or mutual funds.
And like that it’s just speculation.
It’s not even an investment.
And if you doubt me on that, go file on your tax return that your income from your flipping was an investment income..
…watch how fast the IRS comes to your house and shuts you down.”
Flipping
I want to talk today a little bit about flipping. People have the impression sometimes—and we’ve given that impression for quite some time—that we don’t do a lot of flipping, a lot of “buy, fix up, and sell.” The reason we don’t talk about it on the radio is two- or three-fold.
Part of the reason is because it’s a get-rich-quicker’s strategy, and it doesn’t actually build wealth. Now, some of you are going, “But wait a second. If I buy something for $80,000 and rehab it, I’ve got 80,000 in it and I sell it for a hundred and I make after holding costs and such $15,000, isn’t that building some wealth?”
No. Here’s why — and you can study Robert Kiyosaki, you can study Stephen Covey, you can study Warren Buffet, you can study any of the billionaires—the way to truly define wealth is this: Quit your job tomorrow. You’re not allowed to touch your savings. How long could you go without working and still pay your bills?
Goose
Now, remember you can’t touch your savings. You can touch the interest off your savings, that’s your passive income, but you can’t touch your savings. Because what happens if you start hacking away at the goose?
You can’t just take a wing off the goose. You can’t just take a hindquarter. You can’t hammer the goose. You can’t touch the goose, people. We know that. You’ve known it from the time you were old enough to walk — the goose that lays the golden egg. You can only touch the eggs.
How long could you go without working? The answer to that is how wealthy you are. Well, if you buy, fix up, and sell homes, are you building any wealth? No, because if you buy, fix up, and sell a home, you net $15,000 before taxes—you spend that after you pay your taxes and after you pay your car note, your house note, and all your bills.
Let’s say it takes you three months to spend all that. What do you have to do to get another $15,000? You’re right back out there hustling. You’re right back out there locating, negotiating, getting the contractors there, rehabbing the property, and selling it.
Now, is there anything wrong with flipping—with all my whining and complaining—absolutely not. However what if you did like I did and for three solid years you did nothing but flip even though your mentors, other members, and other students while I was at Lifestyles Unlimited were building wealth?
They were buying rent property, they were building passive income streams and equity capture and all the things that go with it, but I was just buy, fix up, and sell. Do you see a problem there?
Addictive
That’s why I often refer to flipping as addictive. What happened was I got addicted to getting those big chunks of money — 2,000, 3,000 15,000, 40,000, 2,000, 3,000, 20,000. It was that cash coming in that blinded me to the fact that I wasn’t really building any wealth for myself and my family.
Now there were other reasons why I didn’t own rent property, but they were all bull. They were all B.S. to say the least. But, that’s why we don’t focus a tremendous amount on flipping. But do huge numbers of the members flip? And do some of you need to flip to actually start?
Now, this is the interesting thing. There’s a bunch of you that answered “yes” to that question—are there a bunch of you that need to flip a few houses to generate some cash to do your first deals and a bunch of you answered yes. Here’s the shocking thing.
Probably let’s just say 50 percent — it’s more than that — 50 percent of you who said yes you need to flip a few deals to get started are wrong. You can go actually directly into rental property, but you don’t believe it. “I don’t have enough money.” “I don’t have perfect credit.” “I don’t have this.” “I don’t have that.” But it’s not true.
I’ve seen Del—the founder of the group, my mentor, the guy who teaches the two-day class—teach a two-day class to where I swear to you let’s say it’s—I’m just making up numbers here for fun.
Rental Property
There are ten people in that room that I know for a fact signed up for the two-day class. They paid their 500 bucks, and said, “I want to take your two-day class ‘cause I need to learn how to flip ‘cause I ain’t got no money. I ain’t got good credit. There’s just no way I can do any of this rental property stuff. I need to learn how to flip.”
And by the end of that second day they come out of that two-day class with Del and they go, “You know what? I’m going to go buy some rent property.” I’ve seen him do it to a hundred percent of that ten. Now, maybe I’m exaggerating a little, but not much.
I’ve seen ten out of ten who thought all they could do was flip come out of that two-day class and go, “You know, I actually can go buy some rent property.” While I’m going to be talking about flipping today, I want you to keep in mind that it is not wealth building. It is earned income. It’s not even—ready for this? This one’s the irritating one. It’s not even an investment.
Speculation
It’s speculation—just like the stock market or mutual funds. And like that it’s just speculation. It’s not even an investment. And if you doubt me on that, go file on your tax return that your income from your flipping was an investment income and watch how fast the IRS comes to your house and shuts you down.
It’s even taxed differently. It’s not even a question. Those of you going, “Oh, come on, Steve. Flipping is investing. Blah, blah, blah.” Nope. Even the taxes are different on the investor. That’s why we talk about the flippers pay 50 to 100 percent higher taxes than the investor does.
Now, with all that said, hopefully I’ve stimulated some thinking in your head. You’ve taken it to the next step, and you’re probably asking, “Wow. Okay. It’s not investing. It’s earned income. It’s taxed differently. It doesn’t build wealth. Steve, why in the world do I feel like flipping is investing? Why does everybody in the world tell me that flipping is investing?”
Beliefs
I’ll tell you why. It’s because there’s a group of beliefs about investment property that the guys who sell books and tapes on late night TV understand. They understand that every single one of you with almost no exception thinks that rental real estate is “tenants, toilets, and taxes.”
You think it’s late night phone calls. You think it’s A/Cs blowing out. You think it’s pipes blowing out. You think it’s tenants destroying your property. You think it’s this that and the other that’s just horrible when it comes to rent property. They know that you believe that.
