Fixing and Flipping vs. Buying and Holding

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Peanut butter and jelly.  Surf and turf.  Burgers and fries.  Milk and cookies.  Coffee and donuts.  Beer and wings.  Wine and cheese.  Alone these things are desirable.  They will certainly satisfy my taste buds and quench my thirst.  But together, these foods stuff my belly and leave me feeling warm and fuzzy inside.

Fixing and flipping and buying and holding have a similar affect on my senses.

It may seem like these two exit strategies are mutually exclusive.  They don’t really go together.  Either you’re a fix and flipper or a buy and holder right?  Well, yes.  And no.

I operate my fix and flip business for the sole purpose of creating enough revenue to pay my monthly expenses and purchase long-term rental properties.  In short, the fix and flips are my business; buy and holds are my investments.

My goal is to keep buying rentals until there is enough cash flow to cover all my bills (and a little extra for regular trips to the beach, mountains and golf course).

Contrary to what the popular real estate investing gurus say you do need some money to get into this business.  Not a lot.  But some.  For you that source of revenue may be your job.  For others, it could be a successful business.  If you’re happy doing what you’re doing (and get paid well) then keep on doing it.  Just be sure to set aside some extra cash to buy a rental or two.

However, if you’re crazy about real estate like I am (and hate your job) then maybe fixing and flipping is for you.  Just remember, starting any new business requires cash reserves.

When I got into the game full-time in 2002 I didn’t have a revenue stream of my own.  I had something better – a Sugar Mama.  My wife had a great job and supported me until I could get the business off the ground.

So what’s better, fixing and flipping or buying and holding?  The answer is, it depends.  Most of the full-time investors I know are doing both.  Those that aren’t would like to do both but need more cash.  And a few of my friends with regular jobs do the occasional fix and flip for extra money to purchase rental properties.

As for me, I think fix and flipping and buy and holding go together like ice cream and chocolate sauce.  Now I need to go.  I’m starving.

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About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

24 Comments

  1. Does your sugar mama have a sister?

    Joking of course! I’m a firm believer in exactly what you’ve said. I take my short term strategies and use them to fund my long term investments. I couldn’t imagine living solely on the income from short term strategies. What happens when you hit a dry spell or that strategy is no longer profitable enough to fund your living expenses and you never bought a long term investment………scary to think about.

  2. A long term perspective really clarifies one’s near term decisions. We must begin with the end in mind and our potential is then limitless. I currently am employed and purchase properties that would be great for fix and flip but I purchase them as buy and hold in order to learn how to do all the repairs and improvements. With the improvements, my tenents are happier and I learn a great deal. My rate of return is increased with the ability to raise rents in improved properties. Also by paying for improvements in cash, my equity increases. As my cashflow increases to cover all my expenses, I can then get buy and hold investments faster. Then I can build up cash reserves and have enough to be comfortable to start in on the fix and flip side of the business. The experience in doing a lot of work myself allows me to know what a project takes and helpa keep costs down when hiring jobs out. Maybe as these two worlds intersect I can retire from my current employment sooner than 14 years from now at 40. It is amazing what is waiting out there for us to earn…

    • Kyle, that’s a great plan. It’s very tempting to flip a house you know you got a great deal on instead of holding on to it for cash flow. I run into this a lot myself. As you wisely pointed out it’s important to being with the end in mind.

  3. I agree about the buy and hold for long term investments. We cashed out our 529 plan for our daughter and purchased two rental homes instead. Since they cash flow, we have short term income and a mid to long term (10) year plan to help her for college.

    Great article, thanks!

    • Christi, it still amazes me how many people don’t know they can use their lazy assets (old 401Ks, IRAs) to buy real estate. It’s a much better bet than the stock market. My Dad used his IRA last year to buy a rental and is getting a 16% cash on cash return. He was earning 4% in a mutual fund.

  4. How do you think this plays out in certain markets, especially in today’s economy? There is a cheap bank-owned property next store that I would love to buy and keep for a rental property, but it is quite scary in today’ economy.

    • Julie, that’s a tough question to answer without more information. Where do you live? Are there other rentals in your neighborhood? Is it a condo or house? How long has it been on the market? How much is the bank asking and how much would it rent for? There’s never a wrong time to buy real estate, only a wrong way to buy real estate.

      • The house is in a suburb-ish area of Colorado Springs. There are a few rentals in the area. It has been back-owned for awhile but they fixed it up well – new roof, new paint on the outside, etc. It is about 30% lower than most houses in the neighborhood.

        • Julie, have you ever owned a rental property before? I suggest you talk to some investors that are buying and holding in your area. If you can’t find any call a title company. They’ll know someone that’s investing in your area. Good luck!

  5. Your article just put into words what I’ve been thinking all along. As a new investor I have one rental property and just made a profit on my first Fix N Flip. Now, I’m just trying to decide which way to go for the next one. I like milk and cookies AND wine and cheese!

    • Margaret, I suggest you determine your income goal and work backwards from there. I flip houses in order to buy rentals. You can have your cake and eat it too (or milk and cookies and wine and cheese).

  6. I brought a condo in Texas when the market was the highest, 2005 hoping to make it big.
    I held on to it too long and now down 100,000. Now I have to hold and wait. no choice.

  7. The strategy will depend on your capability to handle and manage your money or investment. You can do both if you know for yourself that you can do it. But if you can see that you need to focus only in buying and holding just focus on buying and holding.

    • Jason, I meet a lot of real estate investors that treat their fix and flip business like a hobby. Hobbies are expensive. Your odds of success are drastically increased with a solid business plan and short, mid, long-term goals.

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