For those of you that aren’t quite sure of what I’m referring to, a ‘flipper’ is someone who buys a property and turns around and sells it within a few weeks or months for a profit.  Usually they have to repair or improve it, but the truly great simply clean it and because they negotiated such a great price on it, can sell it for a worthwhile profit.

As the market softens, meaning that homes don’t sell for full value in two weeks anymore, I agree that there are going to be a lot of ‘flippers’ losing their shirts, but it is all due to bad fundamentals, not the market.  I think there will be plenty of successful investors flipping properties in this market and well into the future and will make great money doing it.  The key is not the market, it’s the fundamentals.

Over the past four years many people have become so-called ‘investors’ by getting a property, sitting on it for 6-12 months and selling it for a profit.  They could even pay more than than it was worth, let the market catch up, pass them and then sell for a profit, all while renting it at a loss every month.  This is an example of BAD fundamentals!

The key to success in flipping is knowing how much you’re going to make on the property when you buy it, not when you get ready to sell it.  It takes more work to figure this out because you have to do some research, which the so-called ‘investors’ haven’t been big on over the recent past. 

The whole reason I’m on this subject right now is that I looked at a deal yesterday that the seller, who is supposedly a ’serious investor’, tried to dump that wasn’t fitting his investment profile.  Supposedly he thought it was worth $280k when the rehab was to completed, but had about $10k left of work to get to that point.  After my research on the area I did an analysis, which had a profit of $30k built into it and all the associated costs to rehab and flip it, I would have to buy it from him for $33k less than he needed to sell it for.  The sad thing is that he will sell it to someone who thinks they can make money on it and will end up breaking even after 3-6 months of work and all the cash out of pocket to do it.

I’ll share my views on ’speculators’ next.

First, let me say that I have close relatives who bought into a timeshare with Marriott nearly 10 years ago and they LOVE IT.  That is the only saving grace for the whole industry in my opinion.  The reason I bring up this subject is that I feel the whole process was missing some huge components, all centered around due diligence (“the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction”) and would hate for anyone to get caught in the emotion of it all and make a decision that really wasn’t the wisest at the time.  I’m not saying that timeshares don’t make sense for some, but the amount of people that were ‘buying’ around me last week made me think that most buy on the spot and don’t give much thought about it.

So here’s my attempt at giving you some things to think about and get answers to the next time you are being told “you’ll own this vacation the rest of your life and will save hundreds of thousands of dollars, too!”

1. How many of us travel to the same place every year and would enjoy doing that for years to come?  Now I know you can exchange and use points to go other places, but that seems like just as much work, if not more, as planning a vacation from scratch with the only benefit being that you don’t have to charge it to your card.

2. When you do take vacation, do you always want to stay in a ‘Villa’ style room?  There are many times that we just want to go somewhere and be pampered and don’t need a Villa.  There again, the points and transfer issue.

3. Looking at the economics of the two offers we were given with two different companies (both very reputable, high quality, and established, large chains) the financial incentive doesn’t start paying off until year 11, assuming your average hotel stay is $400/night and inflation drives the cost up by 3% every year.  You can benefit financially if you decide to sell at this point if the timeshare has gone up in value, but that’s if you sell and if it’s gone up in value.

Obviously there was no consideration for the emotional component in this analysis, but that was the whole point.  We felt that EVERYTHING in the presentation was based on emotion and obviously lacked a lot on the financial analysis, because there wouldn’t be many who would buy something today that took 11 years to start paying off, so emotion is the hook to be wary of.  This could lead to many other buying situations where you should be wary of the emotional sell, but I’ll save that for a later date.

What makes me qualified to create a financial revolution?  I’d say it’s the way my brain is wired.  First, being the grandson of a brilliant mathemetician helps make the numbers easier to see.  Then getting a Master’s in Business Administration that was focused on Entrepreneurship helped shape the way I view money, cashflow and the idea of wealth creation.  Finally, owning a Mortgage Brokerage www.towermort.com for the past three years that helps create financial strategies for our clients real estate needs and networking with the top minds in the nation about wealth creation has really been the catalyst for wanting to effect change in how everyone views and treats money.  All this leads to my passion for revolutionizing the financial lives of everyone that cares to.

We will pull this off through multiple methods, one of which being this blog, others though business and charity.  I hope to share my views, and those of the brilliante people I’ve studied, on important areas of our everyday financial lives.  These can include your credit score, credit cards, what a mortgage really does for you, sound strategies for real estate investing, what it takes to be a successful entrepreneur (as I figure it out one step at a time), and finally what it means to amass wealth for more than just living like a rock star and how to change the world with what you’ve been given.

You can subscribe to the right or just check back as you like to see what’s been added as I strive to add enlightening thoughts and ideas every week.