Metaphors are one of the best ways of understanding anything. If you really want to learn something new, to speed the process, to deepen the learning… you embrace and compare the new subject to something you already know about. Something familiar to you. Something simple.

This is metaphor. This is comparative learning. The greatest teachers in the history of the world have used metaphors again and again to engrain their teachings in others. The method works because it applies a basic truth about human understanding. It’s the concept of being relative.

We understand things, concepts, and realities by WHAT THEY ARE NOT.

We know high… because we understand low. We know long… because we understand short. We know hot… because we understand cold.

And vice-versa.

And so, flipping houses is likewise relative to other things. In this discussion, art.

And how is it like art? Well, we must consider the definition of art: beauty, expression, individuality. Creativity and passion. There are many ways to understand art, to grasp what it really means. And one way in which art can be understood is the “taking of something ugly, or basic, and making it into something beautiful, or refined”.

Sounds like flipping houses to me. For one, to flip a house means having a house that could use a facelift. Maybe even major surgery. Ugly, plain, in need of repair. Often times, the more damaged and dilapidated, the better it is. The greater the house flipper is able to change the house, the more of a “work of art” it becomes.

These kinds of homes make stellar flippers. You must start with little to make a lot.

For another, flipping a house means having the ability to do the upgrading, the tearing, the lifting, the breaking, and the fixing. The creating and the designing. A house flip project needs the crews to do the work, and do it well. Everyone who has worked in this business understands the importance of the crew. There are just too many possibilities for trouble on any house renovation project to be working with unorganized or unskilled workers.

The house flipping project is similar to a painting canvass needing a painter. The canvass alone will inspire no one. But give a skilled and artistic painter some brushes and paint…and the blank canvass, and there will soon be something to look at and talk about. Something of value.

Finally, flipping houses can be compared to art because in art, presentation counts. A gorgeous painting needs a gorgeous frame. A finely designed figurine needs an elegant base. An engorging book needs a provocative cover. Even so, a remodeled home for sale needs some finishing touches, accents such as staging furniture, washed windows, and mowed lawns. The home also needs a marketing plan: expressive photos and captivating descriptions.

Flipping houses is understood best by comparing it to concepts that are similar, but are of a different subject. Art is a subject that is different, yes, but amazingly similar, for the process of change and creation in art is much like the process we go through when we flip houses.

Most people who flip houses for a living don’t consider themselves artists. But I can assure you…they are.

Four Pros To Flipping Houses

– When you flip houses, you can make a decent amount of money in a small amount of time. People who choose to flip houses as their main supply of money can make another person’s yearly salary in just a small number of months. You can make large profits with this type of business.

– When you flip houses, you answer to no one but yourself. When you’re making improvements, you must still adhere to the ordinances and code requirements as mandated by your city/town. However, you do have a great deal of control on decisions affecting the flip.

– You can play with the power tools when you are flipping houses. Most kids enjoyed playing with tools at one time or another. This love for power tools is the biggest deciding aspect for people getting involved with the house flipping real estate business.

– There are not many investments out there that will take some serious dedication and money like the house flipping business. It allows you to put your blood, tears and sweat into the home so that you make a profit when you flip it.

Four Cons To Flipping Houses

– Real estate including house flipping is risky. There are so many things that can go really wrong in a flip and with the market as volatile as it is, you could end up losing money instead of making it. It’s important that you’re ready to walk away from a flip if you want to make the profits many good real estate investors tend to make.

– It’s not easy to pull out of a real estate deal that’s going bad (unlike the stock market). If you’re going to flip houses, you must be equipped to finish what you started even if it turns out to be a bad deal overall.

– Flipping a house can get expensive so you must be careful when planning your flip out. Adhere to those plans; do not deviate from them if you want to be successful. The rewards you get are well worth all your efforts.

– Many novice home flippers are used to a steady office job and have no idea the physical labor it takes to flip a house. Most people are not skilled in the physical aspects of repairing a home such as replacing floors, painting, plumbing and more. These skills among many others will need to be done if you want to turn a profit when flipping a house. While you’ll want to get some help from outside sources, you really want to do the majority of the fix up yourself.

Despite the fact that there are cons to house flipping, people will undergo this adventure with high hopes of making lots of money. The fascination of quick money outweighs the need for caution. For many people, the efforts to flip houses will pay off as long as the effort is there.

It is a business activity that has waxed and waned in popularity dramatically over the last few years. Ironically, there always seem to be a lot of people jumping on board with investments like stock, gold, and real estate when the market’s going up, and jumping OFF the wagon and pursuing other activities once the market’s slumping. In a way that’s human nature, but it also means a lot of real estate investors are leaving money on the table.

By understanding the dynamics of your residential real estate investment marketplace, and acting in opposition to the rest of the market, you can often make more money, as long as you also stick to the real estate investing fundamentals.

Real estate investing, whether you’re buying residential or commercial property, is not a get-rich-quick scenario. Sure you can make some fast cash flipping houses, if that’s your bag, but that is a full time business activity, not a passive, long term investment. The word “investment” implies that you are committed to the activity for the long haul. Often, that’s just what it takes to make money in real estate.

So, while the pundits are crying about the residential real estate market slump, and the speculators are wondering if this is the bottom, let us return to the fundamentals of residential real estate investing, and learn how to make money investing in real estate for the long term, in good markets, as well as bad.

A Return To The Fundamentals of Residential Real Estate Investing

When real estate is going up, up, up, investing in real estate can seem easy. All ships rise with a rising tide, and even if you’ve bought a deal with no equity and no cash flow, you can still make money if you’re in the right place at the right time.

However, it’s hard to time the market without a lot of research and market knowledge. A better strategy is to make sure you understand the four profit centers for residential real estate investing, and make sure your next residential real estate investment deal takes ALL of these into account.

Cash Flow –

How much money does the residential income property bring in every month, after expenses are paid? This seems like it should be easy to calculate if you know how much the rental income is and how much the mortgage payment is. However, once you factor in everything else that goes into taking care of a rental property – things like vacancy, expenses, repairs and maintenance, advertising, bookkeeping, legal fees and the like, it begins to really add up. I like to use a factor of about 40% of the NOI to estimate my property expenses. I use 50% of the NOI as my ballpark goal for debt service. That leaves 10% of the NOI as profit to me. If the deal doesn’t meet those parameters, I am wary.

Appreciation –

Having the property go up in value while you own it has historically been the most profitable part about owning real estate. However, as we’ve seen recently, real estate can also go DOWN in value, too. Leverage (your bank loan in this case) is a double-edged sword. It can increase your rate of return if you buy in an appreciating area, but it can also increase your rate of loss when your property goes down in value. For a realistic, low-risk property investment, plan to hold your residential real estate investment property for at least 5 years. This should give you the ability to weather the ups and downs in the market so you can see at a time when it makes sense, from a profit standpoint.

Debt Pay down –

Each month when you make that mortgage payment to the bank, a tiny portion of it is going to reduce the balance of your loan. Because of the way mortgages are structured, a normally amortizing loan has a very small amount of debt pay down at the beginning, but if you do manage to keep the loan in place for a number of years, you’ll see that as you get closer to the end of the loan term, more and more of your principle is being used to retire the debt. Of course, all this assumes that you have an amortizing loan in the first place. If you have an interest-only loan, your payments will be lower, but you won’t benefit from any loan pay down. I find that if you are planning to hold the property for 5-7 years or less, it makes sense to look at an interest-only loan, since the debt pay down you’d accrue during this time is minimal, and it can help your cash flow to have an interest-only loan, as long as interest rate adjustments upward don’t increase your payments sooner than you were expecting and ruin your cash flow. If you plan to hold onto the property long term, and/or you have a great interest rate, it makes sense to get an accruing loan that will eventually reduce the balance of your investment loan and make it go away. Make sure you run the numbers on your real estate investing strategy to see if it makes sense for you to get a fixed rate loan or an interest only loan. In some cases, it may make sense to refinance your property to increase your cash flow or your rate of return, rather than selling it.

Tax Write-Offs –

For the right person, tax write-offs can be a big benefit of real estate investing. But they’re not the panacea that they’re sometimes made out to be. Individuals who are hit with the AMT (Alternative Minimum Tax), who have a lot of properties but are not real estate professionals, or who are not actively involved in their real estate investments may find that they are cut off from some of the sweetest tax breaks provided by the IRS. Even worse, investors who focus on short-term real estate deals like flips, rehabs, etc. have their income treated like EARNED INCOME. The short term capital gains tax rate that they pay is just the same (high) they’d pay if they earned the income in a W-2 job. After a lot of investors got burned in the 1980’s by the Tax Reform Act, a lot of people decided it was a bad idea to invest in real estate just for the tax breaks. If you qualify, they can be a great profit center, but in general, you should consider them the frosting on the cake, not the cake itself.

Any residential real estate investing deal that stands up under the scrutiny of this fundamentals-oriented lens, should keep your real estate portfolio and your pocketbook healthy, whether the residential real estate investing market goes up, down or sideways. However, if you can use the real estate market trends to give you a boost, that’s fair, too. The key is not to rely on any one “strategy” to try to give you outsized gains. Be realistic with your expectations and stick to the fundamentals. Buy property you can afford and plan to stay invested for the long haul.

Where does an investor begin a professional education in commercial investment property? Make your decision to begin where you are right now. FOCUS on the type of investor role fits your goals , . . active, passive or a combination of the two . . . then FOCUS on an investment time frame that meets your goals: long term, short term or a combination.

What are the three types of Commercial Property Investors: find properties, secure the right to the purchase and sale agreement and can syndicate the deal by bringing in partners for equity capital when using OPM (other peoples money) or do the deal on their own to complete the acquisition.

Active investors: provide equity capital to active investors, an Investment Company, or Institutional Fund once an accurate Pro Forma is provided that satisfies the passive investor about the properties potential for return on investment (The Pro Forma will match the investment criteria the passive investor has decided is their investment strategy.)

Passive investors: provide equity capital to active investors, an Investment Company, or Institutional Fund once a current Pro Forma is provided that satisfies the passive investor about the properties potential for return on investment (The Pro Forma will match the investment criteria the passive investor has decided is their investment strategy.)

The combination of both passive and active roles . . . is the third way to invest in commercial investment property and can take the legal form of a Joint Venture Partnership (JVP). This entity may provide deal analysis, contracting, acquisition, asset and physical property management and funding for the commercial property by an active investor, or entity with a single passive investor or group of investors.

We often hear in the news about large commercial investment acquisitions by investor celebrities. Active investors like Donald Trump, invest in deals that can require billions of dollars. “The Donald” began at some point to FOCUS on an investment strategy he believed in, the point is . . . he began with FOCUS. You can acquire commercial investment property just like Donald Trump but to do that successfully, you need specific knowledge and techniques used by investment professionals to help you negotiate, secure, acquire, manage, and eventually sell the property according to your particular investment strategy. Specialized knowledge can reduce your risk of making very expensive mistakes investing in commercial real estate for the first time, whether you are passive, active or a combination of the two.

Learning from professional investors that successfully invest daily shortens your learning curve while increasing your return on investment dramatically. Acquiring professional investment knowledge can mean the difference between making and losing money. Commercial investment property education is not rocket science. In fact, the difference between you and a successful commercial real estate investor is focused time, education and the right market opportunity. Anyone can learn to invest in commercial investment property successfully with the right mentoring provided by a proven investment education resource.

Are you considering buying commercial property as an investment ? . . . Consider this: different Asset Types, business plans, neighborhoods, and market cycles, are just some of the influences you will face when you make your investment decisions. You will literally waste thousands of hours of your time and never achieve success, never build that profitable portfolio unless you get the right education to help you FOCUS. It is never too early to start your education process and minimize the risks that come with investing on your own.

One of the reasons many people fail, even very woefully, in the game of investing is that they play it without understanding the rules that regulate it. It is an obvious truth that you cannot win a game if you violate its rules. However, you must know the rules before you will be able to avoid violating them. Another reason people fail in investing is that they play the game without understanding what it is all about. This is why it is important to unmask the meaning of the term, ‘investment’. What is an investment? An investment is an income-generating valuable. It is very important that you take note of every word in the definition because they are important in understanding the real meaning of investment.

From the definition above, there are two key features of an investment. Every possession, belonging or property (of yours) must satisfy both conditions before it can qualify to become (or be called) an investment. Otherwise, it will be something other than an investment. The first feature of an investment is that it is a valuable – something that is very useful or important. Hence, any possession, belonging or property (of yours) that has no value is not, and cannot be, an investment. By the standard of this definition, a worthless, useless or insignificant possession, belonging or property is not an investment. Every investment has value that can be quantified monetarily. In other words, every investment has a monetary worth.

The second feature of an investment is that, in addition to being a valuable, it must be income-generating. This means that it must be able to make money for the owner, or at least, help the owner in the money-making process. Every investment has wealth-creating capacity, obligation, responsibility and function. This is an inalienable feature of an investment. Any possession, belonging or property that cannot generate income for the owner, or at least help the owner in generating income, is not, and cannot be, an investment, irrespective of how valuable or precious it may be. In addition, any belonging that cannot play any of these financial roles is not an investment, irrespective of how expensive or costly it may be.

There is another feature of an investment that is very closely related to the second feature described above which you should be very mindful of. This will also help you realise if a valuable is an investment or not. An investment that does not generate money in the strict sense, or help in generating income, saves money. Such an investment saves the owner from some expenses he would have been making in its absence, though it may lack the capacity to attract some money to the pocket of the investor. By so doing, the investment generates money for the owner, though not in the strict sense. In other words, the investment still performs a wealth-creating function for the owner/investor.

As a rule, every valuable, in addition to being something that is very useful and important, must have the capacity to generate income for the owner, or save money for him, before it can qualify to be called an investment. It is very important to emphasize the second feature of an investment (i.e. an investment as being income-generating). The reason for this claim is that most people consider only the first feature in their judgments on what constitutes an investment. They understand an investment simply as a valuable, even if the valuable is income-devouring. Such a misconception usually has serious long-term financial consequences. Such people often make costly financial mistakes that cost them fortunes in life.

Perhaps, one of the causes of this misconception is that it is acceptable in the academic world. In financial studies in conventional educational institutions and academic publications, investments – otherwise called assets – refer to valuables or properties. This is why business organisations regard all their valuables and properties as their assets, even if they do not generate any income for them. This notion of investment is unacceptable among financially literate people because it is not only incorrect, but also misleading and deceptive. This is why some organisations ignorantly consider their liabilities as their assets. This is also why some people also consider their liabilities as their assets/investments.

It is a pity that many people, especially financially ignorant people, consider valuables that consume their incomes, but do not generate any income for them, as investments. Such people record their income-consuming valuables on the list of their investments. People who do so are financial illiterates. This is why they have no future in their finances. What financially literate people describe as income-consuming valuables are considered as investments by financial illiterates. This shows a difference in perception, reasoning and mindset between financially literate people and financially illiterate and ignorant people. This is why financially literate people have future in their finances while financial illiterates do not.

From the definition above, the first thing you should consider in investing is, “How valuable is what you want to acquire with your money as an investment?” The higher the value, all things being equal, the better the investment (though the higher the cost of the acquisition will likely be). The second factor is, “How much can it generate for you?” If it is a valuable but non income-generating, then it is not (and cannot be) an investment, needless to say that it cannot be income-generating if it is not a valuable. Hence, if you cannot answer both questions in the affirmative, then what you are doing cannot be investing and what you are acquiring cannot be an investment. At best, you may be acquiring a liability.

But if you’re a first timer in real estate investment, there are some things you need to know before taking the plunge. Start with your end goal in mind. What do you hope to achieve? Is it financial freedom? This goal will also serve as your motivation and help shape future financial decisions you make.

Increase your know-how in real estate investment

No one successfully gets into investing, whether in new launch real estate or otherwise, without a basic know-how in doing investment. Familiarize yourself with terms and transactions. To avoid being duped, know the legal aspects of property ownership, taxes and laws.

Moreover, you need to be financially literate to some degree. Investing in real estate could be one of your biggest investments that involve a huge amount of your time and money. You don’t want to spend your hard earned money without being able to somehow calculate the risks and returns on your own.

That’s not to say you’re on your own when it comes to understanding property matters. Take advantage of the Internet to join and interact with others in the fields of real estate, law, marketing or sales-preferably those within the same area as your target investment.

Do your research in real estate investment

In investing, your focus is to sustain value over time. In terms of new launch properties, location is key. Invest in locations which are accessible to public transit and near universities, offices or hospitals like an emerging business district. Fortunately, most new launch real estates are being developed around such prime locations so you have a wide array of choices, competing for your investment.

Condominiums are also on the rise especially in developed countries, with more developers maximizing on limited land and with more on-the-go city dwellers wanting to take advantage of prestigious facilities and services. When investing in a condo unit, research not just the building’s exterior location but also its interior location. Which side is your intended suite facing? No, I’m not talking about feng shui but more of based of practicality and experience. Many homeowners prefer bedrooms or units with lots of windows to be facing the morning sun to avoid summertime heat in the afternoons.

Research can also be done on new launch property by interviewing locales around the neighborhood. Likewise, inquire what types of buildings can be built on any surrounding vacant lots. This helps you foresee any opportunities or issues in the near future.

You can more easily attain your goal when appropriately equipped in real estate investment. Just as this type of investment is big, so can you, with the right preparations, gain bigger returns and profit.