Buy and Hold, Does It Really Make Sense?

Buying & Selling Real Estate
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Buy and Hold, Does It Really Make Sense?

Toyin Dawodu
Residential Real Estate Broker · Riverside, CA · Member since 2014 · 82 posts · 121 votes

I was once a buy and hold investor. Then one day, my light was turned off by the power company, in the house I lived in.

How could that happen? I had 40 houses, but I was always robbing Peter to pay Paul. Edison, the power company was Peter, so once they caught up with my tricks, my light was shut off.
I was frustrated and very broke. Then one day I attended Ron Legrand's seminar and he spoke about quick flips.
His presentation was so good, I paid to follow him to Las Vegas to hear more.

Since then, I have quick flipped over 400 houses.

So each time I hear new investors talking about buy and hold, I feel real bad. Today I ask myself, why would anyone buy and hold?

I once hired an assitant who is a real estate agent. During the interview, she told me she was an investor. Then I asked her, how many properties she had. She stated that she had three properties, one of them she had owned for over 12 years.

Then I asked her. "How much money are you making? She said Nothing, the rentals were barely breaking even and one was vacant.
Then I asked, "how much have you made in 12 years? Nothing she stated.

So the question is, does buy and hold strategy work for new or veteran investors?

This is a debate that everyone should contribute to?

Should you buy and hold? What if you are cash flowing a few hundred dollars a month?

Let's do the math. I buy a property with no money down. I flipped it in 90 days and made $40,000
You are a buy and hold investor, you buy a property, rent it out and you have a cash flow of $150 per month after paying your mortgage.

How long will it take you to accumulate $40,000? The correct answer is 266 months or 22 years.
So do you want to wait 22 years to make $40, 000?  or do you want to make the money now so you can accumulate enough $40,000 to actually pay cash for a few deals in a few years and then think about buying and holding? 

Which leads me to the one reason why buy and hold can make some sense.

If you are retired, you don't want to earn the peanuts interest paid by banks. It may make sense to buy a property cash, rent it out and get above average return on your money.

Another way it makes sense is if you are buying units and can buy enough and get to a cash flow that can replace your current income.

So let's hear from newbies and veterans, does it really make sense to buy and hold?

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Dooreuhn Cee
Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes
11y

This seems more like a subtle advertisement than an actual analysis of buy and hold.   

26Reply
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  • Ed Neuhaus
    Real Estate Broker · Austin, TX · Member since 2014 · 97 posts · 26 votes
    11y

    Sounds like a lot of work.

    1Reply
  • Brandon Duff
    Investor · Dallas, TX · Member since 2015 · 120 posts · 24 votes
    11y

    I am looking at doing buy and hold properties because I have my own career and use it as a passive income down the line.flipping houses repairs rehab knowledge and you to be onsite, or hiring others to do the rehab work and you lose some profit. 

    4Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    11y

    No disrespect intended, Toyin, but it sounds like you and your assistant investor didn't make very good decisions when it came to buying and renting homes.  Many people are very successful and happy investing via the buy-and-hold strategy.  And many people are very happy and successful investing via the buy-and-flip strategy.  The key, for either method, is to make wise decisions.

    12Reply
  • Jeff G.
    Investor · West Bend, WI · Member since 2014 · 214 posts · 149 votes
    11y
    Originally posted by @Randy E.:

    No disrespect intended, Toyin, but it sounds like you and your assistant investor didn't make very good decisions when it came to buying and renting homes.  Many people are very successful and happy investing via the buy-and-hold strategy.  And many people are very happy and successful investing via the buy-and-flip strategy.  The key, for either method, is to make wise decisions.

     This was my first thought when reading Toyin's post as well.

    6Reply
  • Micah Copeland
    Wholesaler · Nashville, TN · Member since 2014 · 407 posts · 180 votes
    11y

    Why I disagree with "not being able to make money on buy and holds" I do agree that it is so much easier to make massive money flipping than holding. However, I wouldn't say one way is right and one way is wrong..

    You state that your flipping is better than buy and holds because you make 40k in 90 days... by that reasoning I could say my wholesaling is better than your flipping since I flipped two contracts this month and made over 25k each deal with less than ten hours of work into each of them. 

    In conclusion there isn't any right way to invest and if you were cash flowing a true 200 a door at 40 doors you should have had 8k in passive income a month.. Thats seems like an alright life to me.

    5Reply
  • Dooreuhn Cee
    Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes
    11y

    This seems more like a subtle advertisement than an actual analysis of buy and hold.   

    26Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    We are buy and hold investors in very specific properties. We have done well and are very happy. That being said the cash flow that we get from our properties is like an annuity! We get more money for our properties in both mortgage pay down and cash flow than just a quick flip would provide.

    As always there is two sides to every story!

    2Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y
    Originally posted by @Dooreuhn Cee:

    This seems more like a subtle advertisement than an actual analysis of buy and hold.   

     @Dooreuhn Cee - Of course, YOUR posts  could never be considered as subtle advertisements...

    1Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    11y

    If you take the worst example of "buy and hold" and the best example of "flipping" then you are right on.  

    13Reply
  • Toyin Dawodu
    OP
    Residential Real Estate Broker · Riverside, CA · Member since 2014 · 82 posts · 121 votes
    11y

    @Elizabeth Colegrove @Jeff G. @micha Copeland,  I think my argument is to make the newbies aware of the pitfalls regarding buying and holding. I still maintain that it is hard to buy and hold if you have no money and can't qualify for a loan. Even if you can qualify for a loan, your strategy must be clear in terms of what you want to achieve. Yes, you can take all the care you want? but the bottom line is cash. Even if you are wholesaling, you will still have more cash in your pocket compared to trying to buying and holding when you are just starting out unless you have other sources of income.  Micha is right, its sometimes possible to wholesale and make quick cash.

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    11y
    Originally posted by @Toyin Dawodu:

    So let's hear from newbies and veterans, does it really make sense to buy and hold?

    Income means nothing, net worth means everything. People can have high incomes for 20 years and still have a  very small net worth.

    So if you're making $200,000 a year flipping, what are you doing with the income? Are you keeping your accumulated net worth in cash or investing it? If you're investing it what are you investing it in? How about real estate? Ooops now you're a land lord. LOL

    10Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    everyone has their own niche and that's the awesome thing about real estate. My husband and I bought our first home on a va loan! If we tried to do whole saling we would have lost our. We could have flipped the house but would have only made a "little bit" and given up all the amazing cash flow!

    0Reply
  • Toyin Dawodu
    OP
    Residential Real Estate Broker · Riverside, CA · Member since 2014 · 82 posts · 121 votes
    11y

    @Dooreuhn Cee  This is a debate. If you have nothing to contribute, you have no right to insinuate comments that are opinionated instead of  stating your intelligent views about the subject. I am not advertising anything. I have been doing this long enough to know the pitfalls for most wannabe investors who are feeding on the wrong information. Its the wrong information that is keeping 95% of the aspiring investors from making any money. Real Estate investment is not about buying properties, its about making money. 

    How can you buy and hold when you have no money and no credit? 

    1Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Toyin Dawodu

    It doesn't have to be either or. You can do both. I've done 800+ deals, many have been flips, but also many were buy and hold. Doing both gives you current income as well as residual income. If all you do is flip, once you stop the income stops, its like a job. Whereas with buy and hold, you can hold forever and never sell and have a PM manage everything, or do only NNN. Then you get income with little or no work. There was a $5.1M NNN deal here with a 5 cap, which is $255,000 a year income and no work and no expenses, that's cool!

    10Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    11y

    I guess I'll reiterate the consensus here and mention that this sounds like an advertisement.

    I will admit I used to think this way. Why would I buy and hold to make $150/month when I could flip and make 30k?? Well it seems that very few people are getting 30k (net after taxes) on their flips, the ones I personally know who are hitting these #'s are doing all the labor and not counting it. That's not an investment nor is it wealth creation. That's just a job. 

    Buy and hold doesn't produce stacks of cash quickly for most. It does produce fairly passive, tax friendly, consistent income and tons of equity. The original post says it takes 266 months to produce $40k in cash @ 150/month. That's correct, but in that 266 months  your tenants are giving you more than 40k in equity. 

     as @Joshua D. said, flipping always makes more sense when you take the best example and compare it with the worst example of buy-and-hold. 

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    17Reply
  • Devan Mcclish
    Investor · Nashville, TN · Member since 2015 · 688 posts · 607 votes
    11y
    1. @Randy E. I would have to completely agree with you. I don't think toyin bought the properties right or that agent he spoke with. Sure if you pay retail for something in a bad area you're not going to make money off of it. Maybe instead of buying 30 units that were not making money, he should have made his criteria stricter.  You also build wealth faster with buy and hold. He claims that it would take 22 years to make 40k. First of all of you bought at 2% of purchase price that means you pay the asset off in 50 months or just over 4 years doubling your cash flow. I would like to hear your explanation for how ken McElroy and grant Cardon have amassed fortunes in buying and holding and then explain to everyone how buy and hold doesn't work
    2Reply
  • Jacob Sanders
    Douglasville, GA · Member since 2015 · 29 posts · 11 votes
    11y
    Originally posted by @Micah Copeland:

    Why I disagree with "not being able to make money on buy and holds" I do agree that it is so much easier to make massive money flipping than holding. However, I wouldn't say one way is right and one way is wrong..

    You state that your flipping is better than buy and holds because you make 40k in 90 days... by that reasoning I could say my wholesaling is better than your flipping since I flipped two contracts this month and made over 25k each deal with less than ten hours of work into each of them. 

    In conclusion there isn't any right way to invest and if you were cash flowing a true 200 a door at 40 doors you should have had 8k in passive income a month.. Thats seems like an alright life to me.

     Micah, 

    I agree! I think that different people are going to invest in different ways. There's no right or wrong way to invest. That's the beauty of investing! The biggest thing that I've learned is that investing is a project and the different ways to make a deal are simply tools that you can put in your tool kit. Once you know the tools, you can mix and match them in a way that is unique to your style and the particular deal you are pursuing. For some people, Buy and Hold won't work. For others, it meets all of their needs and satisfies them. There's nothing wrong with that. Other people prefer to Fix and Flip. That's okay too! Find what works for you and go for it!

    1Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Toyin Dawodu:

    @Dooreuhn Cee

    How can you buy and hold when you have no money and no credit? 

     Frankly, if someone has poor credit and no money, what do they think they have to invest?

    To invest requires a person have some money to invest in the first place.  If a person has not saved any money and cannot borrow any money, they need to get their financial house order so that they might one day invest.  

    I'm glad you were able to find a way to earn a living and keep your lights on, but I think you're wrong to bash B&H as an effective method to invest and build for one's future.  You did it wrong.  Many people are doing it right.

    Good luck in your future no-money-down flips!

    2Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y

    @Toyin DawoduQuick, but complete answer.

    "It doen't make cents...it makes dollars"

    Flipping as a means to get cash to buy holds makes sense.  If you just flip, all you've done is exchange living from "check to check", to living from "flip to flip".

    8Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
    11y

    Flipping is great, but I prefer buying and holding in cash with owner financing. I clear $800 a property and never have to repair it. I'll leave the landlording to other people on this board. 

    1Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    the problem with this post is that it's intended to be foisted on newbies at the free guru seminar and at REI meetings with ma and pa Kettle. Airing these simplistic, one sided diatribes among the mostly educated members of BP defeats the purpose of what appears to be a sales pitch for the ignorant and get rich quick crowd
    8Reply
  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Dooreuhn Cee:

    This seems more like a subtle advertisement than an actual analysis of buy and hold.   

     Not so subtle.  It is a crafted advertisement.

    0Reply
  • Frank B.
    Consultant · Oklahoma City, OK · Member since 2015 · 122 posts · 34 votes
    11y
    Originally posted by @Toyin Dawodu:

    I was once a buy and hold investor. Then one day, my light was turned off by the power company, in the house I lived in.

    How could that happen? I had 40 houses, but I was always robbing Peter to pay Paul. Edison, the power company was Peter, so once they caught up with my tricks, my light was shut off.
    I was frustrated and very broke. Then one day I attended Ron Legrand's seminar and he spoke about quick flips.
    His presentation was so good, I paid to follow him to Las Vegas to hear more.

    Since then, I have quick flipped over 400 houses.

    So each time I hear new investors talking about buy and hold, I feel real bad. Today I ask myself, why would anyone buy and hold?

    I once hired an assitant who is a real estate agent. During the interview, she told me she was an investor. Then I asked her, how many properties she had. She stated that she had three properties, one of them she had owned for over 12 years.

    Then I asked her. "How much money are you making? She said Nothing, the rentals were barely breaking even and one was vacant.
    Then I asked, "how much have you made in 12 years? Nothing she stated.

    So the question is, does buy and hold strategy work for new or veteran investors?

    This is a debate that everyone should contribute to?

    Should you buy and hold? What if you are cash flowing a few hundred dollars a month?

    Let's do the math. I buy a property with no money down. I flipped it in 90 days and made $40,000
    You are a buy and hold investor, you buy a property, rent it out and you have a cash flow of $150 per month after paying your mortgage.

    How long will it take you to accumulate $40,000? The correct answer is 266 months or 22 years.
    So do you want to wait 22 years to make $40, 000?  or do you want to make the money now so you can accumulate enough $40,000 to actually pay cash for a few deals in a few years and then think about buying and holding? 

    Which leads me to the one reason why buy and hold can make some sense.

    If you are retired, you don't want to earn the peanuts interest paid by banks. It may make sense to buy a property cash, rent it out and get above average return on your money.

    Another way it makes sense is if you are buying units and can buy enough and get to a cash flow that can replace your current income.

    So let's hear from newbies and veterans, does it really make sense to buy and hold?

    Did I understand your example correctly that your profit on a flip was $40k after taking into account your carrying costs, transaction costs (on both ends), and rehab cost? 

    And that if you had rented the house instead of selling it, it would only have created $150 cash flow per month?

    Just trying to make sure I understand your story.

    0Reply
  • Brandon Duff
    Investor · Dallas, TX · Member since 2015 · 120 posts · 24 votes
    11y

    also.. It's might be 150 cash flow, but you ask gain equaity and right off the interest 

    0Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    11y

    Toyin,

    Are you an investor or dealer?

    Your title says "investor"

    Not everyone can or will wholesale hundreds of homes a year and I bet most wholesalers make less than $10K on average. The last wholesale property I purchased the wholesaler made $5,500, less carrying costs and he was happy.

    I assume you have marketing, taxes and other expenses that us poor working for peanuts landlords don't. I like having 8 families get up every morning and go to work and send me a check each month. If I want to increase my monthly income them I just need to buy 1 property or raise rents a little.  I don't have to start over every month.

    If it makes you a good living then that's great. It's not what you make but what you keep that counts.

    It's not a get rich quick program.

    If I had purchased 4 new homes in my neighborhood in 1983 at their retail price of $105,000 and rented them they would have been paid for a long time ago and bringing in rents of $1800-$2000 a month each (sheltered).  Along the way I would have been able to pull out cash (tax free) and had plenty of cash flow for repairs. These homes are now worth $325-375K and someone else would have paid for them. $1.2-1.5 mill

    I don't think that would have been a bad investment.  Woulda, shoulda, but I didn't.

    By the way, can you tell us how many $40,000 flips did you do last year?

    I'm not bashing what you do but just because you didn't manage your properties well doesn't mean buying and holding isn't a a good business model.


    2Reply
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