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.

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 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.

@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...

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

@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!

@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?

Toby Bergstrom

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

11y

Originally posted by @Cathy Wells:

@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,

When people say "I'm not making money in rentals"

I say "How much do you need if you sell your property?"

0 Reply

Eric Black

Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes

11y

Buy & Hold = True Wealth

Flipping = Spending money

I do both so I can argue both. We have buy and hold's for the passive income and our long-term wealth. We do flips to quickly build our capital to buy more buy & holds. There are no tax advantages to flips while there are plenty to buy and holds. And I agree, $30k on a flip is good but after taxes you're lucky to end up with $20k of that.

And as any experienced flipper knows, it's not easy to make $30k consistently from the beginning. I don't disagree with Ron LeGrand but when you have to pay $100,000 per year to attend his various seminars and conferences, how many $30k flips do you have to do before you start making money? I know people who were with you in the crowd in Vegas and how much those cost.

Let's both check back in 20 years from now and compare notes.

Best of luck!

3 Reply

Toby Bergstrom

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

11y

Originally posted by @Cathy Wells:

@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,

When people say "I'm not making money in rentals"

I say "How much do you need if you sell your property?"

1 Reply

Andrey Y.

Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

11y

Fair point, but what you described isn't investing in any sense (flipping), except by the colloquial term we use to categorize all of the ways to make money in real estate. Some of us make plenty enough money with our W-2 or whatever job, we just would prefer to invest in real estate vehicles. What you are doing is "working" ;) Like like the rest of us!

2 Reply

Brent Coombs

Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes

11y

Originally posted by @Cathy Wells:

@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.

It needn't be either/or. Remember, the alternative for not doing those "$100 in cash flow" deals is $0/m extra cash flow!

I'll accept net extra $100/m vs $0/m every time! Cheers...

0 Reply

Cathy Wells

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

11y

@Brent Coombs I have to look at where my money is working the hardest for me. If the same capital investment is going to CF $100 vs. $400/month, I'd be crazy to keep it in the $100 deal. But, sure, yeah, $100 is better than nothing. I just don't feel comfortable at that level of return. It's not worth the hassle to me.

0 Reply

Account Closed

Investor · Sunnyside, NY · Member since 2014 · 355 posts · 114 votes

11y

I like my day job, buy and hold investing suits me. I don't think I'd enjoy flipping as much as my current day job (although I do enjoy watching the flipping shows on HGTV on the weekend with a big mug of tea in my hand).

0 Reply

Tyron McDaniel

Flipper/Rehabber · Sugar Land, TX · Member since 2015 · 142 posts · 64 votes

11y

Such a LIVELY discuss what investor can resist tossing his hat in this ring...

For many of the reasons already stated I would add that when you survey locally and nationally the REAL real estate investors (people who actually own & invest in it daily versus those who simply talk about or teach it) it is those who have a portfolio of rentals property of some sorts that have withstood the test of time.

Obviously all markets aren't suited for the buy and hold strategy but with the ease of investing in other markets and countries now, you can't soundly refute the strategy. Any sound real estate strategy built to withstand the test of time must include it, whether it's buying & holding land, houses, commercial buildings etc

1 Reply

Marc Goffaux

Real Estate Investor · Vancouver, B.C. · Member since 2014 · 4 posts · 3 votes

11y

It all depends on your skill, team, purpose, and ultimately the actual deals.

You made $40k in a flip? Fantastic! But how many flippers out there did not work well on the deal and make negative $40k? Or just enough money to get through the month?

Same thing for buy and hold: how many people just breakeven and make no money on the cash flow? But how many people make a 3-5% net return on cash flow + capital gain when they sell in 10 years?

I personally prefer buy and hold: especially if you DONT do a 100% money down. By financing, your money grows in 4 different ways:

- Net Positive (hopefully) cash flow every month

- Appreciation

- Debt Payment

- Tax Shelter

When you flip, capital gains are taxed more heavily then rental cash-flow that you can more easily manage your taxes through depreciation and business expenses related to managing the property.

Just a few points in favor of buy and hold, but I am biased as well. I mean, if you can make bank through flipping, by all means, but buy and hold is definitely a more slower but long-term wealth building process than large cash producing flip deals.

1 Reply

Long Khang

Boston, MA · Member since 2014 · 34 posts · 4 votes

11y

simple, how many wealthy doing flip compare buy and hold?

Do you work for money or money work for you?

I am still a newbie.

Long Khang

1 Reply

Chris Martin

Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes

11y

Warren Buffet is to Buy and Hold as Day Traders are to Flipping.

I'll stick with Warren.

3 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Account Closed:

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.

Is there any way to get you to stop referring to selling properties via seller financing as buying and holding? You aren't buying and holding, you are reselling and carry back a note. There are no repairs when holding a note. There is no cap rate when you aren't a landlord. Yet you keep using these phrases as if they are interchangeable. They are not. I can't tell if you really don't understand or if this is some serious marketing spin.

4 Reply

Toyin Dawodu

OP

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

11y

@Cathy Wells, the point is well taken. Buy and hold, flip, wholesale, the bottom line is for you to know the pitfalls so you can pick a strategy that works for you. I still do buy and hold, but I do it in a way that preserves my $40k or more profit upfront regardless of the economy. If you have one rented house, your cash-flow can never cover your rent, if you have a vacancy. If your renter fights the eviction, and your eviction process lasts three months, there goes your cash flow or savings for the year. But if you are buying and holding smart, you will never have an eviction or repairs until you sell.

1 Reply

David Krulac

Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes

11y

@Jay Hinrichs

and what are

double tax free muni's that are AAA rated.. paying these days. I'm guessing not 5%, maybe 2%?

1 Reply

Dawn Vacek

Investor · Cornwall On Hudson, NY · Member since 2014 · 77 posts · 25 votes

11y

when I was working as a full time brokerI would offset my net with improvements to my buy and hold property, As I got more of them and the "little bits" added up I was able to relax with a nice residule income. No pressure. I would never get that from flips since it's so much about the timing.

There is no right answer to if or how someone should invest. I think there are lots of people who should not be in real estate at all. Nothing is for everyone.

0 Reply

Joshua Chen

Investor · Riverside, CA · Member since 2015 · 185 posts · 27 votes

11y

@Toyin Dawodu

Thank you for your precautioning newbie investors about the potential pitfalls of buy & hold. The insights are worth considering. This is an interesting analysis and I hadn't thought of it this way before!

2 Reply

Brent Coombs

Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes

11y

Originally posted by @Toyin Dawodu:

@Cathy Wells, ...But if you are buying and holding smart, you will never have an eviction or repairs until you sell.

You're kidding, right???...

2 Reply

Jaime Penix

Investor · Tampa, FL · Member since 2014 · 104 posts · 32 votes

11y

I guess I am a buy and hold investor on the surface. But really, I go whatever way the deal is. And as of right now, the deals are for me to buy rehab and hold. I find properties that has the best actual/perceived value (I guess it depends on you view such measure) to purchase + rehab cost ratio. Then I left with a discounted quality house. I have kept all purchased properties thus far (I have only been doing this for about 1.5 years), but if someone is willing to purchase the property for 35K above purchases expenses then I will sell. If not, I will hold until value ramps up or forever. Some of the places that I have maybe added 20-25k equity with the rehab, but with that tax burden and selling costs I would be done to a 10K net profit. Why would I do that when I can get 500-1100 monthly net (Average I would say 700-800/monthly per property). It is easier to say you can make such and such money per flip than actually making that much per flip. First of all it is difficult just finding a house with a margin like that, so you may fire blanks for a long time before actually obtaining the type of property that you can flip. Secondly I am reliant on a lot of middle men, i.e. contractors, selling and buying agents to do a flip. I am not against flipping but to me it is a lot my difficult to get into, especially if you are not the one doing the rehab. Maybe it is just the market that I am in currently maintains the previous statement as true. Maybe when the market truly recovers flipping will be a cinch but right now there a lot issues to navigate.

1 Reply

Tom Cyr

Flipper/Rehabber · Grand Prairie, TX · Member since 2015 · 43 posts · 29 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.

Certainly each investor has their own business model and network of contractors. That will spell various levels of expenses to deduct from the gross rent. But even seasoned landlords face the unavoidable expenses of property management, taxes, insurance, maintenance, cap ex. Some landlords don't make anything but believe that the passive profit ship will come in one day. Other very efficient landlords can squeeze 15% out.

Successful and happy are relative terms. The toddler is happy in the baby pool. The six yr old is happy with his training wheels. The secretary is happy with her job and her stock market retirement plan. The senior is happy her 5-yr CD paying 1%. The bottom line is that income property is a lot of work, especially for the novice. For some people, 10% ROR makes it all worth it.

For those who know much higher yield, it's not nearly enough. A major determiner of an investor being happy with portfolio returns is their awareness and appreciation of better opportunities elsewhere. The comfort zone is amazing box to be in. We justify our actions based on a belief system. It keeps us where we are. Don't most of us tell ourselves that a different opportunity may either be too high a risk or too good to be true? The 1%ers appreciate the mental obstacles insulating them from greater competition.

For the person making 5% on their rental, they may see wholesaling as a very risky proposition where they could burn $2K or more on a marketing campaign only to make just $2K on the contract assignment. And they lay awake at night stressing over getting a contract and not being able to assign it. How many ex-wholesalers could give that testimony? And even if one has a very sophisticated system to feed seller leads, they know wholesaling is just another J.O.B. It's active and investors want passive.

So this author is sharing their experience using their very successful wholesaling business. It's a valid comparison. Good job getting your numbers up on the board. But the story is not over. Now tell us how you are investing your profits so you can work your way out of your active job. All that wholesaling does is create profits to either pay living expenses or put to work in an INVESTMENT.

1 Reply

Chris K.Pro Member

Investor · Baltimore, MD · Member since 2012 · 1k+ posts · 655 votes

11y

Maybe i'm naive but how can someone be knowledgeable enough to buy 40 properties but cannot pay a light bill??

If buy and hold is a bad idea wouldn't you have realized that at house 2? maybe house 3? But to get to 40 propertied before you realized it's a bad idea?

There are so many other factors that could have played into your failed attempt at buy and hold but I wouldn't blame the idea cause it works for other people.

4 Reply

Joshua Feit

Atlanta, GA · Member since 2014 · 240 posts · 130 votes

11y

Josh here. I am a newer investor in the Atlanta area, and I my strategy is buying properties as long-term rentals. I don't have a lot of experience, but I can say that my seven units produce a lot more net cash each month than the original poster mentioned in his sample.

I also perceive a tremendous amount of value in tenants' rents paying for mortgages, which essentially builds equity without paying any money. I'm no expert, but steady wealth-building through buy/hold investing is an amazing value-add compared to the flipping business.

Ultimately, I perceive house flipping as an active business, while I understand buy/hold investing to be an investing strategy with the upsides of passive cash and automation.

Choosing a strategy has everything to do with goals, and steps toward the goals have everything to do with analysis.

Wishing everyone in the BP community many happy returns. Cheers!

0 Reply

Kevin Hamblin

Foreclosure Specialist · Monument, CO · Member since 2015 · 11 posts · 6 votes

11y

Funny thing is, you can make money at real estate if you buy right and sell right. The number of ways to buy a house combined with the number of ways to sell a house are in the 1000's. @Toyen If you lost money doing buy and holds then you weren't buying them so that you could make money on the back side, or you were not holding them right to cash flow.

Every purchase is it's own deal. One must make sure the price and terms are right and you must decide on your exit strategy for any particular property before any paperwork is signed.

The best way to make money in real estate is to do it every way not any single way. You make your money when you purchase a property and you realize that money when you sell it or rent it.

Flipping and fix and flipping have tax consequences on your short term income but can have big gains on your immediate income

Buy and holding depending on how you buy and hold have tax benefits but can have impacts on your immediate income but can be lucrative cash flow. And Can have major benefits on your long term income.

It can be a bit irritating and very misleading when someone is telling people that there is one best way to buy, sell, and invest in real estate.

The Best way to invest in real estate is the way that makes you money.

1 Reply

Michael Worley

Investor · Carrollton, TX · Member since 2015 · 109 posts · 76 votes

11y

Originally posted by @Mike F.:

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

I would actually argue that the opposite is true. Cash flow is what matters, not net worth. Now, before I explain my position, I obviously think that having a higher net worth rather than a lower one is better.

Cash flow is all that matters in anything. As an example, if you have a pension that paid you $8,000 a month for the rest of your life and you spent every penny of it each month you would have a decent lifestyle without having to do any work.

Net Worth only matters to the extent that you can convert that to a cash flow. Having $1,000,000 in equity in real estate properties that don't cash flow causes quite an issue if you have to pay bills.

There are only two types of investing, one that relies on clipping coupons (referring to the coupons on Bonds) a.k.a cash flow, and one that relies on reselling to another buyer for a higher price a.k.a. capital appreciation. The second option is relying on the 'greater fool theory' and that can be dangerous. As the motto goes, cash is king.

1 Reply

Jay HinrichsBusiness Member

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

11y

@Chris K.

same way many Guru's were broke and living in their car before they got a TV show!!

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

2 Reply

Steve Olafson

Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes

11y

Originally posted by @Toby Bergstrom:

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)

Great example.

Buying houses one at a time for rental purposes is a very slow way of accumulating wealth. Build cash in the fastest way you know how and use it to buy apartments or commercial properties that have a "value add" component.

How long will it take you to get $100 to 200K in relatively passive income? I believe longer buying one house at a time and renting them.

2 Reply

Buy and Hold, Does It Really Make Sense?

Buy and Hold, Does It Really Make Sense?

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