Pretty much every time I speak with a broker who is pitching me a deal to buy, she asks me if I intend to flip the deal when I’m done renovating.
The reason for the question is obvious: There’s kind of a custom where, if a broker gets you a deal, you’re expected to hire that broker to sell it for you on the way out.
So, brokers obviously prefer to sell deals to flippers, rather than buy-and-holders, since they can earn two commissions instead of one.
But we don’t sell. Why?
Two reasons:
- Selling vaporizes value, because of transaction costs (brokerage commissions, escrow fees, etc.) and taxes (both transfer taxes and cap gains); and
- We’re in the yield business
The investors who put money with us are generally not hurting for cash. In fact, they work with us because they are looking for somewhere to put their cash that will generate satisfactory yields.
Generally speaking, the last thing those people want is for us to sell and return capital. That just means they got to find somewhere to invest the capital again.
Far better, from their perspective, to keep the deal and have it yield out, ideally for a very long time. And, if we find more deals to do, they can just come up with more capital.