In a recent article in the Wall Street Journal, a lady by the name of Kathleen Wolf from Monterrey, California is discussed. They mention that she was a “Millionaire” (More on this later) who was flipping homes in California and who eventually lost everything. It reminds me of the article/blog posting I wrote last week about the couple that I met (also from Northern California) that was “simplifying” their lifestyle. Remember, simplifying is the code word for – “we don’t have enough money saved up and we don’t generate any income to live off.” That said, in the Wall Street Journal article, this 68-year-old lady had “built her fortune on buying and selling homes, ” and then everything collapsed during the great recession. It goes on to say that her bank balance fell to $15. Yes, $15.
The Flipping Homes Disaster
So what is the lesson to be learned and the moral to the story? This lady did not have a repeatable process of making money! That is the lesson. When you go out Flipping homes, it can be awesome and the “pops” (as I like to call them) can be amazing. $30,000 – $100,000 pops are totally realistic. Here is the caveat…..9 times out of 10, especially in the high-priced markets like CA, Florida, New York etc… you are going to make about 10-15% net after everything if you are kicking ass. What that means is that in order to make $100,000 you are going to need to sell something for about $500,000 – $1,000,000 depending on your net profit (10% – 20%).
Well, let me ask you a question….what happens when you are into a property for $400,000? Remember, this is BEST CASE SCENARIO!! That is, you have $400,000 invested into a property and plan to sell it for $500,000 or so. That $400,000 home is costing you money EACH AND EVERY MONTH! Chances are that you did not pay cash for that home, and you also didn’t get an FHA 4% loan! You most likely borrowed hard or expensive money to make that deal happen. So each and every month, AFTER the property has been fixed up, you are probably shelling out $4,000 while you wait for the deal to close!
What Happens If?
What happens if the deal takes 11 months to sell? Well now, you have reduced your profit by $44,000! What happens if you then say to yourself, “ I am going to wait out the market and rent this property out”….I will tell you what happens, you are going to rent out the property for probably $2,000 – $2,500 per month and lose $1,500 – $2,000 per month! And that won’t cover the destruction that the tenants do to the property! Trust me, stuff will happen!
In the Wall Street Journal article, they don’t elaborate on what happened to the lady, Kathleen Wolf, but I would surmise it was something very similar to what I just described. It also talks about how she was a “Millionaire” and then goes on to explain that she had a little bit of money in the bank and like $800,000 equity in her home….This is one of the flaws of middle-class thinking! Your house is not an asset! You PAY each and every month. How can something that costs you money be an asset?
Remember folks, the magicians behind the curtain are smart! They want you to believe your home is an asset so that you spend money that you don’t have! This is what drives our economy, and even more important, this is how the county gets their cut! The higher the property valuation, the higher the property taxes!
So let’s review this article and go into depth on what she should have done:
– She thought she was a millionaire and she wasn’t
– She was flipping homes to make money, and when the “greater fool theory” market dried up, she lost her income.
WHAT SHE SHOULD HAVE DONE
She should have seen the writing on the wall and started a group home!
Why? Let’s look into it:
She should have looked around and seen all the other people her age that had income drying up. If she had merely purchased a home (even an expensive one in CA), she could have found baby boomer clients to rent the rooms out to for $1,000 – $2,000 per month! Heck, if she is in California, she could have made an 8-bed group home or care home and charged people $1,000 per month and been clearing $48,000 rather than losing $40,000 per year and her income would have been stable and consistent!
Eventually, this lady had to downsize and move to Iowa, where the rent and the expenses are cheap. What she really needs to do is buy or lease a small home for $1,000 per month and start renting rooms or beds out to a specific niche. What niche? She should learn how to start a group home, how to start a sober home or care home for a wide variety of special needs populations.
Types of Group Homes
- Re-Entry Housing Group Homes
- Adult group homes or Adult care homes for the disabled
- Care homes or group homes for the baby boomer population or retirees
- Troubled Youth group homes or care homes
- Sober Homes
- Group Homes for nurses
- Group Homes for airline attendants
- Any old care home, group home or personal care home for those in need
Why should she learn how to start a group home? Because the income stream is reliable and stable! Each and every month, if she followed the systems that we teach, she would learn how to make money with group homes and have her bank account filled to the brim all while making a steady and passive paycheck!
In summary, the moral of the story is focus on your income streams! Group homes, care homes, personal care homes and assisted living homes are a reliable and safe way to make a great living in the real estate world. When flipping homes, just remember to be cautious!
If you are looking for additional information on how to start a group home, halfway home, transitional living home, sober home, foster home, ICF/MR home, DADS Home or other type of care home for people with disabilities; check out our free course on starting your very own income-generating group home by clicking here for our membership or entering your email below for our Free 10 Step Wealth Building Course.
