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.

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.

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?

Jay HinrichsBusiness Member

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

11y

@David Krulac

David not sure as I don't have enough cash to buy them... But my neighbor when I lived in Napa sold his garbage company to WAste management for a ( well a bunch)... so that is one of his favorite cocktail party lines.

Stock broker : what are you invested in> Garbage man Double tax fee muni's... : Stock Broker well those don't pay much you could do better: Garbage man.. Well it really depends on how many of them you have... my 2% return delivers me about 2 mil a year tax free.. so it works for me and I can sleep at night.... LOL... he loved to set the stock broker up with that one !!! But Mr. Bill also owns half of Napa... well not half but a lot of RE .. Vineyards.. Lake front home at Tahoe which is probably worth 10mil.. 8 million dollar personal home.. bought the one next to him for a rental for 4 million.. etc etc.

So there are other ways to aquire wealth and Garbage is one great way.

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Steve Olafson

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

11y

@Jay Hinrichs

I agree with your assessment.

It is important for each investor to look at where they want to get and set a path to get there. If you want to quit your job in 4 years, make a plan to do so. If you want to quit your job in 4 years and live on passive income, you better make a fairly aggressive plan.

Once you make enough, you can certainly take measures for safety.

Now if you want to work for 20 years and slowly build your real estate rental portfolio, that is acceptable. :)

1 Reply

Jay HinrichsBusiness Member

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

11y

@David Krulac

and for you David when any one is down playing the lower priced rental homes in the rust belt markets... like a Ben whatever his last name is.. you can say well yes to own a few of them can be an irritant.. but when you own 500 of them well that's another matter all together.... LOL....

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Steve Olafson

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

11y

Originally posted by @David Krulac:

@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!

Agree! How do you get to the 5M mark though?

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Account Closed

Austin, TX · Member since 2015 · 102 posts · 33 votes

11y

I have done both flips and buy and holds. I love my buy and holds with owner financing especially because I make $600-800 per house and never have to do any maint. 14% cap rates and no repairs is something I really like!

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Jay HinrichsBusiness Member

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

11y

@Account Closed

Not to be a know it all,, but you don't get cap rates when you take back a owner carry mortgage you get interest income and rate of return... you keep say the exact same thing in almost every post... at least get the mechanics correct other wise your credibility will get bruised here on BP

it sounds like you and Joe Pickett work for the same guy.. at least you guys say the exact same thing.. so I got to think this is a sale pitch your doing.

just like the west coast TK marketers that come on and say the exact same thing every post IE I only buy for cash flow and I only buy out of CA becaue CA has no cash flow

these post are really getting old and silly in my mind.

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David Krulac

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

11y

@Jay Hinrichs

Mrs. Horace Dodge, widow of the founder of Dodge cars, had something like $100Million in tax free bonds. Her income was about $3million a year TAX FREE!

I check with a broker today AA double tax free bonds are paying about 2.8%.

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Jay HinrichsBusiness Member

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

11y

@David Krulac

there ya go that is like making close to 5% on a NNN.. you don't need to worry bout depreciation since your not paying any tax's... Bills portfolio is about the same.

Like I said there is huge money for htose that started mid level city garbage companies and were ready to sell when Waste management went on their buying spree.

To make this even Better.. Garbage contracts with a city are usually 7 to 10 year contracts. Well Mr. Bill had a non compete that expired one year before the city contract with wAste management... Well Bills son was running the show for Waste management and only like a big corp could do.. they fired him ... So Bill cranks back up ... Being a Sion of Napa elite and very well known.. he makes a competing bid for the Garbage contract and wins it.. So he sold to Waste management got the huge check.. then buys it back 8 years later and now owns it and bought the one up in Chico and recycling etc etc.. he is a garbage King.

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Ozzy SmithPro Member

Specialist · Dayton, OH · Member since 2014 · 352 posts · 265 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?

The same way you would buy and flip. It can be done through private money, hard money, or seller financing. I'm not sure where you get your funding to buy, and rehab with the thought it takes no money. The key word here is "BUY". If you can purchase to fix and flip then you can use similar sources to buy and hold. In my opinion there is more of a risk in being off on rehab costs for a newbie when trying to sell a property than doing minor repairs for a rental. If you can't figure out the right price to buy with minimal repairs and make a profit how would you ever be able to figure the right price to buy, intense rehab cost, ARV, holding costs, realtor fees, seller financing costs, and worst of all, what if it doesn't sell for the price or in the time frame you expect... there is no income at all! Now what?!

2 Reply

Mel Jeffrey

Developer · Los Angeles, CA · Member since 2012 · 132 posts · 32 votes

11y

Buy & Hold = True Wealth AND Flipping = Spending money

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Bogdan Cirlig

Real Estate Investor · Los Gatos, CA · Member since 2014 · 226 posts · 89 votes

11y

To me is very simple (in a way):

Flipping

Full time job, lot of non productive hours put in, lot of knowledge and research in local market.
If you calculate your honest $$$/hr you will find out it's not that amazing, or yes for a selected few it might be. If you invested 100 hrs total with everything accounted for to make 40k you yielded $400/hr. that's great, especially if it's net income. Oh, in fact you have to give 30-40% to taxes :( so net is what $200/hr?)
the real question here is the velocity of your $$$. If you wholesale you know precisely how much work is to find that one guy who's willing to sign a purchase option contract. Yes you made 40k but count the hours you actually put in and how many deals you lost to competition.
active income taxed at your current % probably 35% + state tax or more if you're doing well

Buy & Hold

Allows you to leverage your 20% cash and your excellent credit to get a piece of appreciating real estate while someone else is paying for your asset. What a nice 401k that you don't even have to put money in every year and invest in stocks, besides the 20% you start with.
If you did the right job and identified the right market right neighborhood, right asset, you place it with a PM and move on with life.
Your actual $$$/hr is sky high albeit not immediate as flipping
tax depreciation, 1031 exchanges
any loss (if any), while passive if you have a non RE job, becomes active when you sell that business asset hence you will write it off against your active income of that year and eventually carry a NOL for next years. We all know most buy & hold properties may yield a small loss after depreciation is accounted for lol, so from my tax perspective unless your property is HIGHLY cash flowing, you may have a very small passive loss every year, though not actual cash loss but depreciation loss.

So back to the original comparison that it takes 22 years to realize the $40k, I think it's worth noting that you also have the asset maybe free and clear by then or close to, and you didn't pay for it and eventually it appreciated a lot in value for the 20% you put down.

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Nuhan Demirkan

Rental Property Investor · La Plata, MD · Member since 2011 · 216 posts · 117 votes

11y

Toyin, sounds like you hit a nerve... But here is my two cents worth...

If buy and hold doesn't work why the big apartment complexes?

1 Reply

Account Closed

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

11y

Originally posted by @Jay Hinrichs:

@Account Closed

Not to be a know it all,, but you don't get cap rates when you take back a owner carry mortgage you get interest income and rate of return... you keep say the exact same thing in almost every post... at least get the mechanics correct other wise your credibility will get bruised here on BP

it sounds like you and Joe Pickett work for the same guy.. at least you guys say the exact same thing.. so I got to think this is a sale pitch your doing.

just like the west coast TK marketers that come on and say the exact same thing every post IE I only buy for cash flow and I only buy out of CA becaue CA has no cash flow

these post are really getting old and silly in my mind.

Either they work for the same guy or there's some new hustle going on in with marketing seller financing deals. Cap rates on seller financing???? That's not even a thing. :)

There's also the issue of the returns being stated. Joe says he's "clearing" $800/mo on these notes. But the deals he's posted have him collecting monthly payments with no accounting for original acquisition costs. He's posted deals like $50K acquisition, $80K re-sale. Unless he's getting $50K down, the note payments are not all profit and he's not "clearing" what he says he is.

1 Reply

John HornerPro Member

Flipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes

11y

Good good good thread. Our model is to market for discounted properties and when the leads come in we decide if it's best for a rental or a flip. Most higher end areas are just not good for rentals, you can't even cash flow due to the high prices and property taxes. We buy these and flip them. There are other "blue collar" areas that are low crime, decent schools, median price range, and when we can get them at a discount make perfect rentals!

My point is that I am not going to throw away a lead in a prime suburb in Ohio that I could make $25k-$50k profit flipping just because it would be negative cash flowing.

I do agree that rentals ultimately create wealth, but you have to get the money to invest somewhere so why not fully align your strategies to kill 2 birds with the same stone!

1 Reply

Daniel Mohnkern

Investor · Titusville, PA · Member since 2015 · 298 posts · 150 votes

11y

I think this question is based on a false premise. The premise makes the assumption that with flipping, one makes a lot of money and with buy and hold, one makes little money. You're really comparing apples to hammers here. If someone knows how to manage money correctly, he or she will not be robbing Peter to pay Paul, but will keep to a budget in each individual deal or company or investment. If one does his due diligence and understands the math in its entirety, he will make a good (or great) return in EITHER strategy. If he does the opposite, he will get the opposite. It's the little reaping and sowing law. Neither strategy is right or wrong, but the people doing them could be. I like making chunks of cash, and I also like my money to keep working while I'm in my nursing home. I choose both for different reasons and I am right both times.

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Bhekizwe M.

Bulawayo, Zimbabwe · Member since 2015 · 1k+ posts · 253 votes

11y

I'm sure both are wise in given circumstances.Flipping gives immediate big profits, while buy and hold offers tax advantages, leverage etc.

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Mike F.

Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes

11y

Originally posted by @Michael Worley:

I would actually argue that the opposite is true. Cash flow is what matters, not net worth.

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.

Until you spend $8001 per month.

In Texas they call it all hat no cattle.

Lots of high rollers rolling around in their expensive cars, living in expensive houses, quite a luxurious lifestyle all based on a high income, who can keep their appearances up as long as they can keep financing it through loans. Those poor show boats can be bought and sold by the truly wealthy who have true wealth measured in net worth not income.

Long ago I was a car salesman in an area considered upper middle class, day after day those people would come in wanting to purchase big, flashy sport utilities. I'd show them a $1100 a month payment with $2500 down payment. They'd have no problem with the $1100 a month payment, but they couldn't come up with the $2500 down payment. Inevitably the deal would be made with no money down with a $1200 payment and they were happy as clams. No cash, but if you give me monthly payments I can have what I can't afford. High income no net worth.

Older folks would come in and write a check for a $50,000 brand new truck. High net worth.

1 Reply

Michael Ellis

Anderson, CA · Member since 2015 · 3 posts · 1 vote

11y

It would seem to me that the best way to make good money in real estate investment is to be flexible in how you make your money. Buy and hold, flipping, wholesaling, vacation rentals, all are can be excellent ways to earn income as well as invest in your future. However every one of those strategies can make you go broke or worse if you do them wrong or make major mistakes.

Even though my wife and I are only now just getting started in real estate investment, we have both been around real estate as a business for year. My mother and uncle are partners and have invested in commercial RE for years. My wife had many years experience managing apartments and other rental real estate. Now that we are ready to make real estate our full time occupation we wanted to have a plan that would get us the most money up front as possible but also allowed us to buy and hold properties that made sense financially.

There is no, one size fits all strategy to become successful in REI. It would seem to me that your best bet is to focus on one or two strategies that you are comfortable with always making sure that your numbers show positive cash flow. But always keep an eye open with regards to other ways of profiting from properties that come your way.

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Glenn McCrorey

Investor · Cedar Rapids, IA · Member since 2013 · 494 posts · 407 votes

11y

This buy and hold guy played golf today..... just saying....

3 Reply

Greg H.Pro Member

Moderator

Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes

11y

This flipper just got back from a week in the Dominican Republic.....so I took the week off from playing golf.........just sayin'

5 Reply

Steve Olafson

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

11y

@Glenn McCrorey, @Greg H.

Heck, I will vote for each of you... People that take action and then enjoy life. What else is there?

4 Reply

Joe VilleneuvePro Member

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

11y

Income from Flipping has a shelf life.

0 Reply

Jay HinrichsBusiness Member

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

11y

@Joe Villeneuve

my shelf life is going on 30 plus years :)

No right answer here I think its what ever floats your boat.. I know when I went on my run and bought 350 SFR's in the mid west It was a lot of work a lot of travel.. its nice to think you can just sit back and hand it all to PM and never worry about a thing.. But that's just not reality with a large portfolio or if you want to make sure your hitting your numbers. Its a job just like now were I have close to 100 new builds and flips or other types of short term investments working at anyone time... Golf I used to play 130 rounds a year now its 2.

I used to take 3 to 4 months and spend it in the desert now its never. Travelling cross country almost monthly to check on my boys and girls in the field.. But that's work of flipping but I like we do inspections then I treat them to the best dinner in town !!

For me I am more comfortable if I want quasi passive cash flow with lending and collecting monthly payments then land lording.. But I realize that is not reality for most as there is no leverage.. So it really depends on where your at in your life and investment cycle.

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Account Closed

Kalamazoo, MI · Member since 2014 · 224 posts · 129 votes

11y

Is the quarter round or shiny? Go

0 Reply

Account Closed

San Antonio, TX · Member since 2015 · 10 posts · 1 vote

11y

Totally makes sense for my seller financed investments in my neck of the woods.

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Buy and Hold, Does It Really Make Sense?

Buy and Hold, Does It Really Make Sense?

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