House Flipping vs Deal Or No Deal
Have you discovered the newest game show sensation? It's a simple enough game; there are 26 cases with amounts of money between $1 million and $0.01. You pick one case which becomes "yours". You are also entitled to the amount of money in that case, but you can't just open it to find out how much it holds. You have to select from the other cases to reveal amounts, in an effort to determine the amount that you have. After each round of opening other cases, there is a "banker" who offers you money for your case, based on what dollar amounts are left unrevealed.
I've rarely seen anyone get to the last two cases; if they do, it often means they've missed their timing and they are going to walk away with much less money than they could have. Deal or No Deal is all about timing; should you take the "deal" offered by the "banker", or do you choose another case in hopes that it has a low dollar amount in it?
For most contestants, there comes a point where the offer from the bank has reached a certain level. Usually, there are about 1/3 of the cases left to open. At this crucial juncture, most contestants should take the deal. Only a couple of times could the contestant have done better with their own case, out of many times I've watched the show. After all, the odds are against them.
House flipping is similar. It works well while the market is with you -- as long as prices are going up quickly, how can you lose? However, there comes a time when the market shifts; you might still do okay, or you might not. Prices are more variable; houses stay listed longer. Is it just a seasonal drop, or is the market really cooling? If I get an offer, do I hold on and hope for a higher bid, or do I take the deal?
It can seem like a good idea to hold, especially if you have an interest-only mortgage. After all, your monthly payments aren't that high. You can continue to carry the property. But you aren't building any equity either, and if the housing market drops, you may even be left with a loan to pay off that mortgage.
Timing. If it was easy, I'd have made a million in the stock market.