BiggerPockets

I've always wondered which investor would come out on top in the next 10 years of investing.

1. Let's say that Julio buys up $50,000 SFRs and flips them for a profit for $25,000 - $40,000 in the Dallas market. He does anywhere from 5-8 transactions a year.

2. Let's say Mark is a buy and hold SFR investor and buy one property a year and finances each one of them with 30 year fixed and rents them for 10 years. So Mark will be holding 10 SFR by end of year 10.

In this case, who would come out ahead? Have you met more people who are multi-millionaires by flipping homes or buying and holding several properties. I know both strategies have its pros and cons.

Need more data.

1. So Julio is starting with $100K+ and what, spending the $125K-$320K he makes each year?

2. Marks cash flow, value of homes? Does Mark have a diff income or living on rent?

Many more details needed

Sorry Jon and Jason...

Julio and Mark are both investing in the Dallas housing market. Let's say that Julio is starting with only $100,000 while Mark is starting with a $500,000. Mark is buying SFRs valued at $200,000 - $250,000 with 10% - 20% down and financing the balance. Let's also assume that the SFRs will double in value in the Dallas market in 10 years.

With Mark's $500k he can buy 10 in year one. They will be worth $5mm in 10 years. He'll owe about $1.5mm. His equity is $3.5mm without even considering all the rent income. Mark's ahead!

Now, about that 7% a year appreciation...

The beauty is that James can emulate Julio and Mark and DO BOTH. Then you get the best of both worlds. You can use some of the profits from your flips to fund discounted purchases of rentals with leverage.

Capitalization rates for rentals are generally under 15%. So in the absence of debt you can generally expect to make 15%- on your money. With debt you can leverage maybe 3:1 or so to ratchet this number up.

This number will almost undoubtedly be lower than the return (100%+) on equity for flips or new development deals if they are done properly. However, this number also does not carry as weighty of a time component and is harder to execute with a full-time position that provides stability needed in most people's life circumstances. The development and/or rehab business will erode your ability to keep a W2 income and thus this presents and tradeoff or opportunity cost.

I like this formula:

1. Have a steady W2 income to provide the stability and base needed to build your business

2. Execute rehab and development deals, combine these funds with the excess funds from item 1, and fund long-term rentals

3. Purchase a mix of SFRs and MFDs dispersed in both time purchased and locale to spread risk. Purchases should be made at a discount and provide at least break-even cash flow. The blend can also be between those purchased with upside (appreciation) and for cash flow

You can then do some tax sheltering to mask W2 income and keep more of what you earn. You can also set up separate entities and insurance to indemnify legal risk. Later on you can also start a private equity fund to raise cash from investors to help fund the capital needed for your growth.

If you do all of this skillfully you get stability and a machine that spits off cash to fund discounted rental purchases to provide for what will eventually be free and clear income to produce hammock cash flow in your later years. You can also exchange properties to avoid taxation as you trade up and capture more depreciation tax shields against income.

I don't look at it as a choice between good flavors of ice cream when I can have it all!

MFD = Multi-family dwelling.

You may want to check out developing new product instead of flipping. I like it better than flipping personally and if you pick the right markets I think it is almost as lucrative and less time consuming.

First, yes I and most the others who replied on this form do know how amazing real estate is in Texas, over half the replys to your questions are from people somewhere in Texas!

Second, I HIGHLY doubt very many if ANYONE is buying $50k properties, flipping, making $25k on each, and able to do this multiple times a year, little alone 8 times a year, not realistic. high profit spread for such a cheap priced house IMO

Another thing I think, personally, is if your going to flip your better off in a little bit of a higher price point, maybe not the $250k you talk about buying as rentals, but in the 100+ range for the texas market. I also feel if your going to hold rentals your better off in the sub 50k range. more profitibality.
It seems IMO since the first time home buyers credit stopped, ALOT of the $50k-75k price range houses have been A TON harder to sell, sell cheaper, and take longer. Dont get me wrong, no houses are flying off the market in ANY price range, but realistically the people willing to live in 50-70k houses are generally lower income, older neighborhoods, outdated areas, older schools, and have worse credit and not as much money down, = IMO harder to sell.
the $100-250k price range in most areas of texas can get you nicer older neighborhoods and newer neighborhoods, bigger houses, 2 bathrooms, stuff not often seen at the lower price point.
If you were to buy 2% rule houses and apply the full rent payment to the principal you should have paid off houses after 10 years, thats giving buffer room for repairs and unexpected cost. You should realistically be able to purchase more properties per year then 1, and therefor have a 20+ house portfolio after 10 years. IMO, this is the more profitable way, and the more "secure" way. Flips can and do go bad, If you have one flip sit on the market for a year, and all your money is tied up theres not many options for doing another flip.,
I feel your lower income might not be as easy to sell in 10 years, but as far as profitibality, this is the way to go in my opnion, this and/or owner financing these lower income properties. everyone has there own cup of tea, this is my choice.

If you constantly yell at and insult your contractors, how many do you think you will have looking for the next job from you?

Of course, let's not get started on the "profit" amount from these flipping shows being stated as sales price minus purchase cost minus repairs ...

I'm not sure this is a realistic scenario...

If you're buying 20 houses for $100K, that's an average investment of $5K per house. If you're generating $300-400 per month in cash-flow, that's $3600-4800 per year.

Cash-on-cash returns on those investments is between 70-100%, which isn't realistic for most investors in most markets (in my experience, at least).

Obviously, if you can consistently generate 70-100% annual returns through buy-and-hold, you'll do better than a typical rehabbers, as it's difficult to generate more than 50% cash-on-cash returns on a decent sized portfolio in most markets (again, in my experience).