Los Angeles, CA · Member since 2009 · 717 posts · 50 votes
Hello everyone. I'm just wondering, which of the two strategies will make someone very wealthy? Rehab or Renting out in this market? I've been lucky enough to accumulate a decent amount of cash from wholesaling and rehabbing, but feel like it's a very tough business in this market since if I don't flip houses then I don't make money. Does it get easier with rental properties? Which is the better way to go about this?
While you can make decent money rehabbing/flipping, it's unlikely you'd make enough to get "rich" (at least based on my definition of rich).
Holding rentals is a great way to build long-term wealth and passive income, so if your time horizon is a decade or two (or three) out, and if you have the cash/credit/income to accumulate some properties, buy-and-hold is probably a great strategy.
And as Chris said, combining the two is a great way to go -- using rehabbing to generate income and then plow that income into rentals.
I'm not extremely experienced, but I'm well on my way, and I would say that some combination of the two would be best, especially if investing is your only source of income. For instance, you could keep every 3rd house that you rehab as a rental. Or the ones that need the least amount of work and time could be held as rentals. That way you balance short term income with long-term cash flow.
While you can make decent money rehabbing/flipping, it's unlikely you'd make enough to get "rich" (at least based on my definition of rich).
Holding rentals is a great way to build long-term wealth and passive income, so if your time horizon is a decade or two (or three) out, and if you have the cash/credit/income to accumulate some properties, buy-and-hold is probably a great strategy.
And as Chris said, combining the two is a great way to go -- using rehabbing to generate income and then plow that income into rentals.
Over the years I have known both that have done well. On a short-term the rehabber will strike gold when everything falls in line. It all depends on market conditions and financing. Over the long haul the accumulator will outlast if done right. Buy and hold can fall by the wayside if over-extending meets with unfavorable conditions.
You have to eat. Investing is what you do if you have more than enough to eat.
Both flips and holds--when coupled with the right exit strategies--will generate decent income. Yet, the holds will help to build one's equity and passive income. Keep in mind that flips and rentals aren't the only ways to generate income or build wealth from investing in RE. Some other options (that have different tradeoffs) are tax liens, notes, etc.
I've done quite well with a buy and hold strategy. Flipping is more of a short term strategy that can produce good returns now. Rental properties require some investment upfront and can provide current cash flow and when done right can build solid future wealth.
IMO you need to have some activity that creates current income and something that will build for future retirement. Trying to solely live on rental properties can be quite difficult especially if you are just getting started.
Nick Sidoti said his greatest real estate mistake was selling a property. Nick does special needs populations gets 2-3 x returns.
An associate picked up a duplex in Detroit was mortgaged 80K he got it for 6K. Its full and cashflowing 1K a month. Whats going on in Detroit is happening in other areas PA, OH
Two partners wholesaled a multi every week for a year, 60K every month. They did 3 gut rehabs cleared 100K on each.
Buddy closed and sold 3 SFR in 1 month-total profit 130K, he carries a 2 yr note on the props
In short every technique can produce huge returns. Find something you are comfortable with and max the results.
The $100-$300 cash flow/month won't match the $25,000 from a flip - not until years have passed. (Substitute your own numbers in there) But it's not just cashflow, rentals give you appreciation (well...not in the current market, but usually), and also give you tax advantages. And of course the rentals bring in the money year after year after year after year....
I agree with those who say use rehabbing to fund your rentals. Use the tax advantages from rentals to lower how much tax you need to pay from all that rehab money :) But be careful not to overextend yourself with the rentals - you don't want to lose everything just cause one thing goes seriously wrong.
But the real secret is to build your business into an actual business. Where you can hire others to do all the work for you, and you reap the benefits of 5, 10, 20 or more people (as they reap the benefits of steady employment). Then even if you stick with just wholesaling/rehabbing, you can make it big.
I would suggest joining your local investment club to stay current with what's working in your area and to make more connections.
Also consider investing in an IRA and make all your purchases from that because you'll have tons of tax free benefits....
Also through your investment club find out where to invest some cash on those who rehab and make sure you're in first position.
Lastly continue what you're currently doing but really once you do the IRA thing you will be able to drop 1/2 strategies if it gets to be too much and you're rolling in the dough..gl
Several years ago, I set a goal of moving to a new area and making a million dollars in one year, starting from scratch. I moved to SO TX and actually was well on my way for about 5 months. I was a little behind my schedule, but had 8 flips in escrow, all with a nice profit. Then the changes came with fannie-freddie on only 4 mrtgaged properties, down from 10. Seven of the eight properties dropped out forever. My goal was dead, but as JSCOTT said, making over 200K is done a lot. Need a full blown team, super area and adaquate capital. I was buying on court house steps in Hidalgo, TX.
I doubt I could do the same today in TX and feel 100% that I couldn't do it in Lee County, FL, where I've been for last 2 years. Rich
Buying distressed rentals, probably multi's, then rehabbing them and stabilizing for cash flow. Once stabilized (rented out) refinance conventional to pull back out some of your cash.
Hold long term, don't flip them. Then in between or in conjunction with, do some flips to generate cash to pay down the conventional mortgages.
You'll end up with free and clear multifamily rentals, which will withstand downturns and provide significant cash flow and appreciation over the long term with low risk.
Ann- good plan. You'll have to PAY off loans, and not just pay down. Until the loans and lending loosen up a little, you'll be limited in total loans. A good local commercial bank will be your best option eventually, imo. Rich
Money doubles every 4 years with a return of 15% Then quadruples in 8 years. Multiplies 8x in 12, 16x in 16 years. So if you start out with 100k in year one, say at age 30, by the time you are 46, your 100k will grow to 1.6 million. And yes, you'll be 46 and be getting all the girls! By consistently hitting 15% singles over the years.
Then there is the matter of adjusting this return for "risk". Some strategies are riskier than others. Flipping is riskier than rentals. Rentals are riskier than holding discounted notes or making private RE loans.
So stick with the strategy that produces the lowest risk adjusted (PITA adjusted) return as close to 15% as you can.
I have discounted notes, and private loans in my IRA earning 15% or more tax deferred). If somebody I knew and really trusted came across a screaming deal once in awhile, I'd go in with him/her.
I think RE, like any other biz, is about meeting and networking with he right people. Not just about what strategy (flips, holds, paper...etc.) you use.
thats a good point becuase you build experience and with holding and buying turn key properties with a competent realtor and inspector you will have no huge expenses that you may come across with when doing rehabs.
for me its the route i'm taking
although after reading jay decemas book the thought of fixing up multi is appealing