Hey, everybody is kind of on the flip and sell strategy versus
the rehab and read strategy, and this is often confusing.
In fact, you guys watch the TV like rehab and rents are boring.
Like, you know, you're not going to find a TV show on that. Right?
Like you're going to see these, you know, fix and flip.
The problem with fix and flip, because I did this early on in my career,
so oftentimes I look back, I don't know how you guys are, but,
you know, I look at like
my mom's house, you know, what did my mom pay for our house? Right.
It's like 20 grand or something.
She's still in that same house.
Well, you know, the thing is, is I'm like, oh, I wish I would have kept that house
because or that I, you know, that I bought 10 years ago, 20 years ago
or or the duplex of the fourplex and all the units that I sold
back in the day, you know, there were double even triple what they
and the rents have gone up over time and the values have gone up over time.
And the problem with flipping, because I did this,
is that you just have to do it again.
So now there is a strategy is a great way to make money.
So sometimes you can flip into and to buy and holds.
So, you know, I'm not trying to say don't do it,
but if it's your soul strategy, you know, why would you work so hard
trying to identify properties, fix them up and sell them all ?
They'd have to do it again, because it's like musical chairs.
At some point the music stops and then you're stuck
with whatever you're stuck with.
So I'm going to walk through kind of my view on this.
And really the goal is to is to generate some kind of financial freedom.
So let's get in to the flip versus sale
and the rehab versus rent scenarios.
So here's the traditional flip versus sale.
And if you guys know, it's like buying a house for 100,000, 250,000
wherever you are, it doesn't really matter.
And selling it for more.
And I've done this, by the way.
I did this on two thousand units in Las Vegas in the early 2000s.
So I do understand the difference.
The problem that I had and the problem that a lot of people have is that you're
now into what's called a capital gains scenario, where, you know, you're paying.
It could be a short term capital gain, could be a long term capital gain.
I'm no accountant, but the point is, is
that you're going to pay tax on that.
So while you know you've got your gross and you're taking a look at that.
The truth is, it's not really all yours, your big piece to the government.
The second thing is,
is that you guys are going
to have lots of fees coming and going, you know, to your real estate agents.
And maybe maybe it's you, maybe you're the real estate agent
to your lenders and all that kind of stuff that you're going to have around that,
that the advantage, of course, is that you get that immediate profit.
But really, if you do this five or six or seven times in a year
or perhaps even more, I know guys that are doing this a lot more.
You know, you really need to be able to to take
at least 20, 30, 40 percent of that money
and and and escrow it for the government because it's not yours, essentially.
So this is a capital gains strategy.
The problem with this strategy is it's you know, it's short term.
That's the biggest problem
with the strategy now, there's nothing wrong with a short term strategy.
But you just need to know what it is.
And so if you sell everything, which is what exactly what I did in Las
Vegas in 2005 and 2006,
then you basically have made a bunch of money and you have nothing
to do because the market changed a lot, as you know what happened in 2007, 2008.
The bottom fell out.
And now so we had a bunch of cash.
And thank God we didn't have a bunch
of the properties because some of the properties that we
thought we had a lot of profit in.
You know, we did it.
What I really call this is what we call it.
Busyness. Not a business, but busyness.
And so you only as good as your next deal
and your next deal and your next deal and your next deal.
And you really have to have good accounting.
You just need to understand this is a very short term strategy.
And I think when you start out not a bad strategy,
but you just got to know that we're really trying to do
is get over here to the rehabbed rent category.
It's not as sexy
you don't get to take all the profit, but you're also not paying the tab.
So let's walk over here and talk about that.
Hey, everybody. Ken McElroy here.
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So rehab and rent is doing the exact same thing.
It's buying the house for fifty thousand one hundred thousand two hundred thousand,
and then it's renting it, which requires management and all these other things.
But what you're trying to do is you're trying to have enough rent
to cover your mortgage and all your operating expenses.
OK, so typically a renter will cover their own utilities,
but usually you're covering the property taxes, the insurance and the mortgage.
And so what you want to make sure is the rent covers that.
So if you buy it for
a hundred thousand dollars and you're renting it for a thousand dollars.
Chances are you're going to have a pretty good cash flow,
which is what ultimately what we're trying to do here is you're trying
to stack up these different properties and make them cash flow.
So the great thing
about this is on the tax side, the government now working with you
because you're actually providing housing for people.
And so you get what's called depreciation expense.
And so you actually might have a real income,
but it completely wipes away because you have
what's called a nonoperating expense in the form of depreciation.
But it's it's basically a way to get income and not pay any tax.
And that's what I learned from my condo days.
What I really liked about this is that this is a long term approach.
But it requires you to understand that
this is a real business, so you have to run it like a business.
The properties are a business.
And if you if you have enough of them,
then you're running it like a full on business.
So it's this is business. This is business.
This is long term. That is short term.
The other thing about it is the fees are less.
Now, if you manage it yourself,
you can get away with not having the management fees.
But if you don't like it, a lot of cases we manage our own most cases,
but in a lot of cases, we also use other people.
There are fees there, but you don't have all those reoccurring fees for sales
on the commissions and the lenders and all the kinds of thing.
And the contractors
and all that stuff on a long term basis on one particular property
and then your profit.
Now, it's not immediate. That's for sure.
Because if you buy something, flip it and sell
it, you're going to get that profit immediately.
You obviously owe the tax and you're going to pay all the fees so you get the net.
But in this particular case, you have to wait until you refinance.
And this is we talked a lot about this on the video that came out of our dot com.
This is a cash out refinance.
And as people like to say, this is when you become infinite.
So if you buy something out a hundred grand and it goes up to one
hundred and fifty grand.
Then you can go put another loan on it for a hundred grand.
And you can pull all your cash out that you bought it for.
And at that point, you still own the property.
It's still cash flowing and now you're completely infinite.
So that's what we like to call infinite return is when you pull that out.
Here's the best part about that.
When you refinance and you pull your profit
back out, it's tax free.
And the reason that it's tax free is because it's a loan.
You're actually borrowing money against the original money that you borrowed.
And so you're just paying off the old loan, replacing it with a new loan,
which is more money.
So it's no different than you do a cash out reify in your
own personal residence, for example.
That money is not taxable because you owe it.
And so you get the cash and you can buy another one
and you can buy another one and you can buy another one.
So that to me is a better model.
This takes a lot longer.
It's an actual full business.
It's a longer term play on real estate investing.
But what you're trying to do is you're trying to develop cash flow,
repeatedly, reoccurring cash flow over a long period of time
so that you can get out of the rat race and be financially free.
So thank you for watching.