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 $40,000You 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?

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

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.

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

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.

@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!

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

@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".

Buy and Hold, Does It Really Make Sense?

Dev HornPro Member

Flipper/Rehabber · Arlington, TX · Member since 2013 · 1k+ posts · 2k+ votes

11y

Interestingly, I went to one of the guru presentations (initials DG) at a local hotel just to see their pitch. It was slick. They wanted you to buy their $2,500 course.

They enticed the audience with multiple examples of wholesaling where the "student" made - you guessed it...

$40,000 on an assignment.

No one here in D/FW is making $40K on assignments ("wholesaling"), except in rare cases. The average here in this super competitive market is probably $5K.

Whether buy & hold makes sense is dependent upon your market, whether you get your houses below market, the rehab costs, and of course the monthly cash flow and your expectations for ROI. I know a lot of guys that cash flow portfolios for years and then sell the properties for significant capital gains as they reach retirement.

Almost all the WEALTHY investors I know are not just wholesalers. Most wholesale, rehab, buy and hold, list/broker. etc. So I'm just not sure I can follow the argument being made here. Sounds like we're being steered into a ... SALES PITCH! =)

2 Reply

Ricardo S.

Investor · Charlotte, NC · Member since 2014 · 117 posts · 32 votes

11y

Posting that type of question on this website is nearly like posting "is chicken really healthy?" on the chick-fil-a forum? What are you doing??

3 Reply

Javier Marchena

Investor · Winter Springs, FL · Member since 2010 · 165 posts · 68 votes

11y

I believe you can make money doing flips or buying and holding. You can also lose money doing flips or buying and holding properties.

Not doing your homework or using the investment calculators offered here in BP can get you broke either way.

I have done several flips and also have a few rental properties. Love doing flips, but I love more getting money from my rentals without doing a lot of work.

0 Reply

Dooreuhn Cee

Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes

11y

Originally posted by @Toyin Dawodu:

@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?

How can you pose one bad example for buy and hold, and lots of puffery for flipping, to support your conclusion? How does one bad example represent 95% of investors?

After initially typing two paragraphs of a response that was so fundamental that it seemed patronizing, I started to question the validity of the question posed in the first place.

2 Reply

Dooreuhn Cee

Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes

11y

Originally posted by @Toyin Dawodu:

@Dooreuhn Cee

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

Owner financing.

0 Reply

Jonathan Godes

Lender/Investor · Glenwood Springs, CO · Member since 2013 · 218 posts · 103 votes

11y

If you are making $40k, you are probably talking about a flip where you have at least $200k invested. A $200k SFR in many scenarios would (should) net $300 a month. There are three things that buy-and-hold does for you that fix and flip does not.

1. Appreciation - If I had bought a $200k home in my area two years ago it would be worth $240k right now. Yes, we have been coming off the "bottom," but there is you $40k right there.

2. Depreciation - You can depreciate the asset for your taxes. You can effectively show the IRS that you made little or no money while cashflowing $3,600 a year.

3. Long term capital gains - you pay 15% or 20% when you sell the buy and hold (or defer it with a 1031) but your ordinary rate when you flip.

4 Reply

Brandon Hall

CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes

11y

@Toyin Dawodu Seems like a guru whispered sweet nothings into your ear.

Rental income is passive and tax advantageous. Flipping is not passive and tax disadvantageous.

I don't think you analyzed your rental deals properly which is why you got burned. Further, I have my suspicions that you are analyzing your current deals properly as the example you gave is completely bogus - here's why:

If you are analyzing everything on the gross amount (pre-tax), you are doing yourself a disservice. Let's assume you are in the 25% tax bracket and you also have to pay self-employment tax of 15.3% - your $40k profit is now down to $23,880.

The rental was cash flowing $150/mo, which we will assume is tax free. Where I invest, that gets you a $70k property. Let's assume you 100% financed the property with a rate of 4.5% and term of 30 years. The monthly mortgage payment is $355, but the principal portion of that first payment is actually $92. So really, you are returning $242 per month which bring us down to a total of 98 months (8.2 years) to match $23,880. WOW you were way off dude.

Further, the principle portion of the monthly payment will actually RISE each month. If you throw all of this in a spreadsheet, you will see you actually match your $23,880 in 92 months (7.66 years). This assumes we never increase our monthly cashflow of course.

All that said, I would strongly consider building out solid spreadsheets that help you with the financial analysis of different decisions. This is the type of stuff that can make or break you. If you had to decide to buy/hold vs flip and you saw that the "break-even" was 7.66 years rather than 22 years, you may be jumping for the buy/hold.

**Edit: Additionally, while your time is consumed fixing and flipping a home, the buy and hold guy is networking with private investors and closing more deals...

17 Reply

Charles Worth

Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes

11y

Like anything else it depends on how you buy. If you buy a flip with no room for overruns and no room for a lower sales price than you will probably not be very successful either.

I think buy and hold is hard because many of the costs that kill you don't occur in year one and can be easily ignored if you just want a property now. The vacancies, the capex, the extra R&M costs for when you need to move-in a new tenant most of those ignored. Worse because the market has appreciated those who bought in the past few years can just point to appreciation as the bail out for all these problems.

On a flip though you buy and if you buy right and estimate your costs correctly over a one year period chances are you make money and the costs are "real" because they occur in the last year.

3 Reply

Jorge Ortega

Newark, NJ · Member since 2015 · 4 posts · 0 votes

11y

Hi all

Is very interesting between both sides,I'm newbie and I'm learning from you guys,my first REI was in Tampa is a buy and hold property and I make some cash flow the first year ,but now I keep it for my parents to live there and take care is making good equity for my future ,but now I was looking for a property where a live close by and I guess is a good sample if I buy it and hold or flip..need suggestions

Thanks!

0 Reply

Oliver Trojahn

Kansas City, MO · Member since 2008 · 143 posts · 41 votes

11y

Flipping is for Rookie investors.

Passive rental income is for true wealth and freedom

5 Reply

David J.

Investor · Houston, TX · Member since 2009 · 210 posts · 261 votes

11y

The only time you STOP making money in real estate is when you sell the property. You make money whenyou buy, You make money when you hold. You make money when you lease. As soon as you sell, you are done making money off that property.

Clearly the example used here for $150 cash flow or $40k cash is garbage. If you were talking about the same exact house it would be $150 cash flow and $40k equity at the same time. There is no either in buy and hold. It is both. That is the point. You get both the equity when you buy and the stream of income (and pay down and appreciation and tax benefits) when you hold. You can have your $40k anytime you want. You just have to give up the rest to get it. Depending on your financing, you could have all three. Just ask @David Krulac

He and I have similar models. But a house with 40k equity that cash flows $400 a month and then find a bank (or private lender) and refinance the 40K out (or 30k or whatever). Then you get all thee. You keep the cash flow (reduced but still there) and you keep the equity (reduced but some still there) and you get the immediate cash. On top of that, you don't pay any taxes on the cash you pull out because loans are not income. On top of that, the amount of equity the bank makes you leave in the house would be lost to taxes if you sold anyway. So the argument that the bank won't let you have all of it is crazy. They are the only way you get to keep it all sheltered from taxes.

All I ask is that you stop selling your houses unless you have a great reason to do it (you absolutely can't get the cash out any other way). You sell = you kill the golden goose. Some gooses have got to go, but you better dang well be sure the goose is done laying golden eggs.

If you just bought wrong, you won't have cash flow or a $40k assignment fee coming your way. At least compare apples to apples.

18 Reply

Justin Bernsten

Real Estate Investor · Parkville, MD · Member since 2015 · 10 posts · 1 vote

11y

I am a newbie who has not done any deals yet but on the hunt. I think that ultimately which strategy to start with or use will be best determined by your experience and means. I think doing both would be beneficial.

I am planning to start by doing buy and holds and 'house hacking' for my first property aking advantage of FHA loans and possibly some grants. In a few years when I have more savings/safety net/track record to get money together for flips where I can have staying power to not sell short and deny large % of potential profits I will consider doing those deals.

The main thing I think that is being overlooked is that when a buy and hold deal is being done right you will have cash flow and ideally appreciation. That cash flow may take 22 years to = one of your flip deals but as a main strategy you are left with a whole lots of homes that have been paid off by other peoples money. You will have lots of equity to cash out someday or to continually leverage to acquire more properties.

Personally I find the prospect of having someone else pay my mortgage nice... multiply that many times over where I am providing a good service in the form of reasonable rates and ethical land lording just makes sense.

-Justin Bernsten

1 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

11y

Originally posted by @David J.:

The only time you STOP making money in real estate is when you sell the property. You make money whenyou buy, You make money when you hold. You make money when you lease. As soon as you sell, you are done making money off that property.

Clearly the example used here for $150 cash flow or $40k cash is garbage. If you were talking about the same exact house it would be $150 cash flow and $40k equity at the same time. There is no either in buy and hold. It is both. That is the point. You get both the equity when you buy and the stream of income (and pay down and appreciation and tax benefits) when you hold. You can have your $40k anytime you want. You just have to give up the rest to get it. Depending on your financing, you could have all three. Just ask @David Krulac

He and I have similar models. But a house with 40k equity that cash flows $400 a month and then find a bank (or private lender) and refinance the 40K out (or 30k or whatever). Then you get all thee. You keep the cash flow (reduced but still there) and you keep the equity (reduced but some still there) and you get the immediate cash. On top of that, you don't pay any taxes on the cash you pull out because loans are not income. On top of that, the amount of equity the bank makes you leave in the house would be lost to taxes if you sold anyway. So the argument that the bank won't let you have all of it is crazy. They are the only way you get to keep it all sheltered from taxes.

All I ask is that you stop selling your houses unless you have a great reason to do it (you absolutely can't get the cash out any other way). You sell = you kill the golden goose. Some gooses have got to go, but you better dang well be sure the goose is done laying golden eggs.

If you just bought wrong, you won't have cash flow or a $40k assignment fee coming your way. At least compare apples to apples.

I was going to pick out a particular part to quote...then I realized I would have to pick it all out to quote...and to say

"well said". I particularly like the part where you say, "...you get to keep all three".

1 Reply

Ben Leybovich

Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes

11y

Hahaha - I'm staying out of this one. Don't need Josh banning me for life...haha

1 Reply

Peter John K

Vail, AZ · Member since 2015 · 64 posts · 17 votes

11y

there's alot of reasons to buy and hold all the more qualified investors have spoken on....

Here's a reason why I would not flip houses no money down because at any time the market can crash and if you have a house you never intended on fixing your done. You can flip stock options with higher percentages and much faster too.... I'm gambling on Nike today....

As an end result though if all the markets crash my investments will be in buy and hold because I will be holding a property I can live in or rent out.

0 Reply

Chris Cyr

Investor · East Bridgewater, MA · Member since 2015 · 17 posts · 17 votes

11y

Flipping is not investing.

6 Reply

Account Closed

Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes

11y

Do you like growth stocks or high beta momentum stocks . Do you like cash flow or making quick cash? All portfolios should be diversified and there is room for both in real estate. Flipping properties or trading notes or partnering in deals are all part of the process.The bottom line are you making money and are happy with the process. It is almost like day traders vs swing traders vs value investors. One can portion his portfolio for all of those ways, if they have the time and inclination and means to do it .

1 Reply

Toby Bergstrom

Engineer · Worcester, MA · Member since 2015 · 54 posts · 40 votes

11y

The income from flipping stops the day you stop "flipping" (read working.) The income from buy and hold investing stops when you stop holding (as long as you buy right.)

If you can flip a house and make 40k great. Do that 3 times and you have 120k. That's a 30% down payment on a 400k multi unit property with a commercial loan at 5%. Use the skills you've developed flipping to find a property selling for 400k with an ARV of 600k and force equity. For this example let's say it's six units rented at 850/month each when you buy it. Use your talents to bump up the rents and increase the curb appeal during the first year and as leases renew increase the rents. Market rents are in the range of 1100 where I am so lets say we get there or and or we reduce operating costs a little.

Maybe it takes a year, maybe two (remember we can still flip houses for 40k when ever we need cash.)

So now two years later fully rented at 6600 a month we do a cash out refi at 70% LTV pay of the 237k you still owe on the original loan and pocket 180k tax free dollars. don't forget the 100/month cash flow after debit servicing that turns into 4500/month in 10 years when you own that 600k property outright (neglecting appreciation) If you complete the flip at this moment you've made 480k after taxes with out any appreciation or about 830k assuming 4% appreciation. (not sure why you would sell at this point but you like to flip properties and the flip isn't done until you sell...) I would just hold onto the 55k per year (assuming no rent increases and accounting for management and vacancies)

Now I know these are just numbers and this is just math, but investing is numbers and math (and understanding tax laws a little I suppose) I'm not a lawyer or a CPA and I don't play one on the internet but I am good at math. This was one hypothetical deal. How many can you do in a year? (my target number is only 2 per year, I'm pretty lazy and those 8 flips I need to do seem like a lot of work.)

toby

[email protected]

5 Reply

Cathy Wells

Investor · Decatur, TX · Member since 2015 · 52 posts · 20 votes

11y

@Toyin Dawodu I am personally extremely interested in flipping or wholesaling. BUT. We have a buy and hold business right now. When people say, "I'm not making money in rentals," they don't understand the numbers. You have to get in at the right price, in the right market. You don't get in if the numbers don't make sense. Tax deductions are a HUGE part of the money-making and if you have a corporate job (like we do), it's a huge blessing to get some of those 3-4 months of your life back via deductions.

There's a place for everything, really. Consistent cash flow is allowing us to build a home. We have a large padding of reserve in case anything major happens, though. At this point, we are wanting to do what YOU do in order to buy more rentals. It really can all work together. But who knows, we may feel as you do someday....

0 Reply

Cathy Wells

Investor · Decatur, TX · Member since 2015 · 52 posts · 20 votes

11y

@Toyin Dawodu I should add that "$100 in cash flow" is absolutely ridiculous. You should START at around $350-$400 (after property management) and that's not including your tax benefits. Wow. I can't believe anyone would consider that.

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@David Krulac

or buy double tax free muni's that are AAA rated..

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0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Toby Bergstrom

forgetting about the tax man..once you get into big dollars flipping you have really big tax hits too... so if your lucky enough to make 500k in a year flipping you don't have 500k to invest you might have 200k... figure 150 minimum in tax depending on state and 100 to 150 a year to live.. I know very few that make 500k that don't spend at least 10k a month living the life they deserve

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4 Reply

Toby Bergstrom

Engineer · Worcester, MA · Member since 2015 · 54 posts · 40 votes

11y

Originally posted by @Jay Hinrichs:

@Toby Bergstrom

forgetting about the tax man..once you get into big dollars flipping you have really big tax hits too... so if your lucky enough to make 500k in a year flipping you don't have 500k to invest you might have 200k... figure 150 minimum in tax depending on state and 100 to 150 a year to live.. I know very few that make 500k that don't spend at least 10k a month living the life they deserve

I didn't really want to confuse the issue with too much tax discussion but I did account for taxes in my math. I just assumed he was making 40k/flip after tax. And if he is I'll sign up for the course (since I love learning and it will we a tax deduction...)

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Toby Bergstrom

pretty hard these days to average 40k a flip unless your in bigger dollar deals. I have experienced a few.. but those were done by very switched on people that had a complete market advantage over someone coming out of a training course

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3 Reply

Toby Bergstrom

Engineer · Worcester, MA · Member since 2015 · 54 posts · 40 votes

11y

Originally posted by @Jay Hinrichs:

@Toby Bergstrom

pretty hard these days to average 40k a flip unless your in bigger dollar deals. I have experienced a few.. but those were done by very switched on people that had a complete market advantage over someone coming out of a training course

I'm a longtime buy and hold type (did I mention I was good at math?) I'm working on my first flip now (to create capital for buy and hold) and was thinking 40k was kind of high for average but then again I've been following my market for almost 20 years and have made and lost millions in it with good and bad decisions. The trick is to make more good ones than bad...

By the way I was looking at your web site and I think I understand what 13% ROI without debit means but what does 60,000 per day mean?

Feel free to respond off line so we don't hijack this thread.

[email protected]

0 Reply

Buy and Hold, Does It Really Make Sense?

Buy and Hold, Does It Really Make Sense?

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