Buy and Hold, Does It Really Make Sense?

167 Replies

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?

Sounds like a lot of work.

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. 

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.

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.

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.

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

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!

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...

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

@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.

  

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

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!

@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? 

@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!

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. 

  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
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!

Originally posted by @Toyin Dawodu:

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?

"Invest: expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture"

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!

@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".

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. 

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

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.

This post has been removed.

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.

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