STRATEGY
REALITY CHECK
• He had financial flexibility thanks to the sale of his company. He was not operating on a tight deadline and could afford to elongate timelines and learn “on the job.” • He was investing in the hot California housing market, which allowed the partners some “wiggle room” to make a few mistakes and still turn a profit. • He worked with another investor who was more familiar with the process and knew the initial cost of the property left room for repairs. Many others who get involved in flipping because it looks incredibly exciting and glamorous on television do not have these advantages. And the price they pay can be very, very high. REALITY REAL ESTATE TELEVISION CREATES OVERCONFIDENCE THAT KILLS DEALS & DREAMS Imagine quitting your job and investing in a $1.7 million mansion in New Jersey because you just knew you could do at least as good as job as those characters you’ve seen on television. Now, imagine spending more than a year on that project between dealing with repairs you failed to foresee and complications from a slowing high-end housing market that required you to actually re-do some of your best “HGTV-designer” work in order to make the house attractive to local buyers. Now, imagine making about $10,000. Don’t get excited. You made less than $1,000 a month and you quit your job. That was not a win, and you didn’t even get paid the pittance that “Love It or List It” homeowners get for their appearances. Nor, by the way, did you earn a salary for all your design mishaps because (remember?) you are not a reality real estate design “star.” Am I knocking reality real estate television too hard? Certainly, a lot of people would say, “Yes!” I constantly hear it from my friends and other investors — particularly those who have gotten into real estate since the end of the Great Recession. They tell me, “Charles, give these people a break! No one really thinks reality television is real anymore. At least now they are involved in real estate. That should make you happy.” Let me be clear: I love it when people get involved in real estate investing. Real estate investing is one the greatest wealth generators of all time. It changes countless lives for the better when done well. Unfortunately, it can also
The Reality Risk
neighbors, was “stalking” a house heading for the auction block. The first deal went smoothly, just like the shows implied. The partners made about $80,000 in profit. However, their second deal was much more time- consuming and costly. Each partner walked away with only about $10,000 after sinking months into the deal. At that rate, there were a lot of other things the investors would have been better off spending their time on. Things became financially tight as much of the capital from the sale of the business had gone into the low- return project. The investors wondered if they should give up, but ultimately kept flipping. That particular newspaper article has a happy ending. The former tech entrepreneur is now a happy and successful flipper. However, he was operating with a number of advantages most people do not have, including:
WHY TREATING “REALITY” REAL ESTATE TELEVISION AS EDUCATION PUTS THE ENTIRE INDUSTRY AT RISK.
Content provided by Charles Sells, The PIP Group
n a recent article in The New York Times , a would- be home-flipper recounted his first attempt to fix- and-flip a property. He recalled how he had recently sold a thriving tech company and was relying on the proceeds from that sale to stay home and care for his wife and toddler while his spouse was on bed rest during a tough I
pregnancy. Not surprisingly, part of that “family time” included watching a few relaxing episodes of reality real estate television, complete with high-end fixtures, tense design moments, and a happily concluded, profitable transaction by the end of each show. Pretty soon, the soon-to-be investor, along with his
42 | think realty magazine :: november / december 2019
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