Strategy: Flip for Cash and then Buy & Hold?

Question

So I'm wondering if this is a good overall strategy to begin with..

Since I don't have much capital... should I start with a few flips to generate some investment capital and then buy some rental income properties?

Does this approach make sense?  Is flipping a good place to start?

Any help would be appreciated..

btw, I know that this could take years and it's not as simple as I'm presenting it :)  I'm willing to invest the time and effort.

Thanks again!

Joe Villeneuve · Answer

Yes @Saar Kagan Your strategy is the way to go.  Do it correctly though.  Don't look at it as doing a few flips to generate cash to buy a rehab, then stop flipping.  What you described should be a big part of your "system" of REI.  Keep repeating the "flips to hold" system.  Look at the flips as a continuous source of cash to buy your holds...the flips become your own personal bank....and assembly line of cash to buy holds at the end, again and again.

Account Closed · Answer

Of course it's a good place to start, but if a flip goes wrong, you could go from having "not much money" to zero and in debt. Don't let this discourage you. Read J. Scott's books: The Book on Flipping Houses | The Book on Estimating Rehab Costs http://get.biggerpockets.com/flippingbook/

You should first partner up with an experienced flipper.

Alternatively, you could owner-occupy 1 unit in a 4-plex by using an FHA loan to put down 3.5%; after living in it for 12 months, move out and rent the fourth unit. Then do it again, if you'd like.

Pete Perez · Answer

@Saar Kagan

Hi Saar,

I think what you are describing is one of many routes to RE success. Undoubtedly if you listen to the podcasts you'll hear about how people found success by using different methods. Yours happens to be the way that I make sense of wealth generation. The way it makes sense to me is in a 3 phased approach.

1. Active income - W2 Jobs, Flips, Wholesales, Realtor commissions, etc. Anything you have to actively participate in.

2. Passive income- Still requires some effort, but not as active as phase 1. This could be buy & hold SFRs, MFRs, apartments, etc.

3. Interest incomes- money made from lending your money out for a fee. This is ultimately where I'd like to end up, but it'll take time to get there.

So to participate in phase 2 of wealth generation you need active income which is where the flips come into play. @Joe Villeneuve said it best that it should be part of your system going forward.

I think your plan makes sense. As others have stated you just need to be sure you do it correctly.

Best of luck,

Pete

Aaron Litzenberg · Answer

This is great feedback to hear!

I feel like I am in the same situation and had the exact same idea!  Glad to hear that I wasn't way off in left field.  Thanks everyone for the feedback and @Saar Kagan for posting the question.

Pete Perez · Answer

@Saar Kagan

I agree. I like to start high level and narrow in.

I'm sure there are more strategies. I've heard of variations of those strategies, but haven't looked into it in great detail.

Saar Kagan · Answer

Thanks @Pete Perez.

That's really helpful to get my head around the whole top level approach to real estate investing.  I think it's alway nice to get things explained in this way because it provides a ton of perspective.

Do you have any other ideas for phase 1?  Other than flips, wholesaling, or brokering.. are there any other common real estate related activities that I should consider?

Robert Spencer · Answer

I think it makes a lot of sense.  I started with rentals, because I feel a bit safer with them.  I don't know if that makes any sense or not, but it's just what I'm comfortable with for now.  However, I'm starting to toy with the idea of flipping, because I feel like I've got a better idea of renovation costs and a better grasp on the local market overall now that I've rehabbed 3 rentals.   I say if you're comfortable with it, go for it. Make sure your numbers work for other exit strategies as well in case the place doesn't sell right away.  In other words, I'd have a backup plan.

Tiffany Clay · Answer

Great information gentlemen. This is the basis of my plan as well. Saar you're on the right track.

Strategy: Flip for Cash and then Buy & Hold?

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