Best Strategy for 1 year Wealth Building for Buy&Hold, Fix&Flip and Wholesaling

[James Kandasamy]

I was trying to do some analysis on different RE strategies between Buy&Hold, Fix&Flip and Wholesaling. The assumption i made was

- 10 house with equity capture of 25K for both Buy/Hold and Fix&Flip.

- For Wholesaling, i assume that the amount of deals are 3x (30 deals) with 10K per deal fee.

- The analysis period is 1 year which means at the end of 1 year the Buy/Hold houses are sold to realize the equity capture.

- There is 100K of initial capital for Buy&Hold or Fix&Flip for acquisition, rehab and closing cost.

- Average cash out of pocket is 10K per house. Each house is 100K.

- Appreciation is 7% per year. Equity pay down is 1% since tenant will paying down the Buy&Hold houses. I assume 6% realtor fee and 2% closing cost for both Buy&Hold and Fix&Flip.

- The investor is paying around 30% tax rate currently.

- The taxation for selling Buy&Hold houses after 1 year is 15% Long term capital gain tax. Tax for Fix&Flip and wholesaling is around 40%. I assume 40% because the investor is paying 30% now and few more hundred thousands of active income (Fix&Flip, Wholesaling) would put the investor at max 40% tax rate.

The results

Buy&Hold

10 Houses, 25K/house equity. Total Accumulated after 1 year = 250K. After 1 year with 7% appreciation and 1% loan pay down by Tenant minus Realtor and Closing cost of 8%. After 15% Tax the cash out is 212.5K

Fix&Flip

10 Houses, 25K/house equity. Total Accumulated after 1 year = 250K. Minus Realtor and Closing cost of 8%. After 40% Tax the cash out is 142K

Wholesaling

30 Houses, 10K/house deal. Total Accumulated after 1 year = 300K. After 40% Tax the cash out is 180K.

My conclusion is,

if an investor has the 100K to spend on Real estate investing and are really good being a landlord and have a full time job where he does not need to take out money from the RE ventures for living, the best wealth building would Buy&Hold. I have not even added the capital depreciation tax benefits that the Buy&Hold investor gets.

Fix&Flip is the lowest but would probably be good if an investor is trying to accumulate cash in the short term. The tax % takes away a lot of equity.

Wholesaling is second best but It still does not beat Buy&Hold even though the ratio of cash accumulation is 3 to 1 in my analysis. The tax % takes away a lot of equity.

Maybe Buy&Hold is best strategy for this investor who has full time job, don't mind being a landlord and has initial capital.

So why are investors doing Fix&Flip and Wholesaling ? Short term gain. Cash accumulation ? No Initial Capital.

Thoughts ?

James