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?

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.

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?

Jay HinrichsBusiness Member

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

11y

@Account Closed

John nice of you to pop on .. Joe Pickett who has been representing your company on this website has made quite a name for himself .. as he has a hard time describing what you do and one of his post garnered over 285 replies which is huge here at BP.

It seems like there are a few more working for you posting on this site..

be nice to hear from the man and the owner of the company

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

1 Reply

Greg H.Pro Member

Moderator

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

11y

Another Joe from Texas bites the dust ? I was really looking forward to the after pics of the 20K junker

1 Reply

Jerry W.Pro Member

Moderator

Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes

11y

I disagree that buy and hold is not the way to go. Where else can you take $20K and generate at least a $100 per month in income and still end up with a paid off $100K to $200K property that generates $500 per month in income? It does take some work, but you could not come even close with the stock market or many other investments. You have a leverage ability with real estate buy and hold. You can make a lot of money flipping, but it is much greater risk.

2 Reply

Eric Black

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

11y

When you have to/decide to stop flipping, what is your income? $0

When I decide to stop flipping or quit my day job, what is my income? Currently over $4,000 per month thanks to my buy and hold investments.

Good night.

3 Reply

Faun Perdue

Investor · Columbus, OH · Member since 2014 · 37 posts · 12 votes

11y

Bought my second house in 2009 for 12,7k in late summer. Less than 2k in repairs. Rented if from "2010-13" for $600.00 Grossed $7200 netted 4900 x 3 years = 14,7k. Nothing amazing but that's all my original investment plus repairs back from then on it was all profit. At this point can flip it if I decide or continue to rent it. "14" had a family member in it that paid utilities, and treated it as a vacancy but that's the reality of renting. Currently, in the process of putting new roof and gutters on it to be rent ready by mid april or early may. So yes buy and hold works for me, everyone is different. I can utilize this to build my track record to start purchasing MF's. So eventually move to that but my main strategy now is wholesaling. My model is something like wholesale to build capital. Invest capital to purchase more good performing assets meaning houses(SF, duplex,MF). Flip a house every quarter, wholesale the rest of the time and build my portfolio. The goal multiple streams of income. No matter wholesale, buy and hold, fix or flip, if the numbers make sense and your comfortable with it why not go for it. In nov. of last year joined BP to improve my RE iq these are the type of discussions that allow multiple perspectives from seasoned pro's and newbies a like...I'm always up to learn. BP is one of the best places to do it.

2 Reply

Mark Andrew Deidiker

Queen Creek, AZ · Member since 2015 · 18 posts · 6 votes

11y

This is where that awesome hybrid theory comes in. You can sell as soon as you renovate it, on a budget, but yet still get the job done. Just an idea though. haha

0 Reply

Henry M.

Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes

11y

I've done almost every aspect of real estate and do prefer both fix & flip and buy & hold... I've generated from $5K to $55K in assignment to wholesale deals... I was bringing in $10K per month before the crash... Sold most of my properties... AND must admit lost a couple.

Hands down, I miss my buy and holds... However, If I am able to pick up a property via little to no money down and break even throughout each year... I'm okay with that. But I do prefer below median homes as rentals. I made more profit in lower income areas vs. higher income areas.

Those who say buy & hold is the way to go, are 100% correct. So many advantages, especially when having multi-family properties.

For me, Wholesale to Fix & Flip, is truly only to fill in the gaps.

Each have their advantages. But if I was forced to choose only one method, it would definitely be to buy and hold, hands down.

Especially, when you do it right.

Many on here have great rationales for either/or. But in my opinion, you don't need as much money to acquire a property to hold, where as flipping, you need some skin in the game or OPM.

Great debate and arguments here on this thread - Very proud of most of the input from our multi-dimensional community.

Just my two pesos.

Big Henry.

1 Reply

Ronald PerichPro Member

Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes

11y

So I skimmed a lot of the responses and I'll assume the OP was intending to ask a valid, debate-starting question.

My original intention was to start in the short-term areas of wholesaling and flipping. As I researched more, I found it wasn't going to reach my reals goal - wealth creation. To me, wealth means I have more control over my life and live it on my terms. I am not a captive to being active day-in and day-out. I can choose my level of activity.

To that end, I started putting numbers to paper and found that buy-and-hold, notes, etc were going to be the way forward. I will likely do short-term stuff, too. But the real strategy is long-term investing.

A couple of people stand out as examples.

One is Grante Cardone of podcast 108 fame. Listen to his podcast.

A second example is Brie Schmidt. Look her up here on BP.

Ken Corsini, a frequent blogger here, just created a new podcast where he interviews folks about their "Best Deal Ever". One of his guests, Kevin Morice, talks about his best deal. Listen to that podcast and hear how he has a $30K property where he is receiving $750/month. (Sorry @Ben Leybovich, but this sounded like you can make money on a $30K property).

Fact is, in real estate the money is made in the "buy". If you don't buy it right, then you will be in trouble from day 1. Keeping your money with buy-and-holds is in the service. Service your customers, service your debtors, service your properties.

"If anyone wishes to be first, he shall be the last of all and the servant of all."

1 Reply

Joe Cummings

Philly Burbs, PA · Member since 2015 · 338 posts · 133 votes

11y

Buy and hold seems to work really well for those who like dealing with people. I unfortunately am not one of those people. As soon as I catch someone lying or trying to BS me, I have to get away from them before I tell them all about themselves.

Seriously, I'd rather deal with structural issues, HVAC, or changing the grade, than have to deal with a BSing liar..

I really don't have it in me to want to deal with residential tenants. Or from watching my parents and grandparents experience, bar and restaurant people.

So anyway, I think it all comes down to what you are comfortable with, and what you enjoy doing. There are no 'one size fits all" business plans.

2 Reply

David Krulac

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

11y

@Joe Cummings

For buy & Hold you don't have to deal with tenants, that's why they invented property managers.

3 Reply

Glenn McCrorey

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

11y

@Greg H.@Steve Olafson Thanks Steve! Buy and Hold compared to Flipping is an apples to oranges comparison. I had to work a full time job for 11 years while investing in rentals but just retired last Dec. Flipping is a full time job if you're staying busy. If you invest the proceeds to create passive income it's kinda' the same thing. To each his own.

1 Reply

Jay HinrichsBusiness Member

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

11y

@Eric Black

when I take a break from building or flipping your correct my income on those activities becomes zero However ... I am lending all the cash I made or land banking... and my cash flow for those passive events would equal hundreds of leveraged SFR's ... but to be fair I have been at it a while. like we all say its apples and oranges.. and if you make good money flipping or wholesaling ( a job) and you can't save any to reinvest then it truly is a job... my biggest job is throttling the Mrs. Credit card and that's singular because she is only allowed one .... LOL

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

1 Reply

Tom Giles

Homeowner · Panama City, FL · Member since 2015 · 31 posts · 6 votes

11y

My question for flippers and whole sellers is how are you investing for retirement or do you intend to flip/whole sale for current income your entire lifetime?

0 Reply

Jay HinrichsBusiness Member

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

11y

@Tom Giles

my SIDRA is 80% first trust deeds.. and the balance stock. now notes can go bad but I have been buying notes since the mid 80's and have some pretty good experience at it and am a NMLS licensed mortgage banker that does HML or will be doing it in ORegon starting next week... so its what I know and am comfortable with. Have I had notes go bad you darn tooten but we try to mitigate that risk as best we can....

I am constantly reinvesting in building lots that I pay cash for.. or other low hanging fruit.

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

0 Reply

Charles Worth

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

11y

@Account Closed Joe certainly stirred up some controversy and curiosity in all his short posts about the strategy. Would be great to hear more from the owner himself.

0 Reply

Account Closed

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

11y

Originally posted by @Greg H.:

Another Joe from Texas bites the dust ? I was really looking forward to the after pics of the 20K junker

What is it about the Joe's from Texas on BP? Those posts were getting so weird. Since when do we post before and after pics of properties we sold to someone else. I've sold many junkers, some with seller financing, and sorry to say I don't have before and after pics or take credit for.....work done by the owner. Those deals don't have cap rates either.

This is a great thread otherwise. Really interesting to me how many say they are flexible and doing it all when it makes sense due to markets and timing.

0 Reply

Account Closed

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

11y

Originally posted by @Charles Worth:

@Account Closed Joe certainly stirred up some controversy and curiosity in all his short posts about the strategy. Would be great to hear more from the owner himself.

John's profile says "I own a sizable portfolio of distressed properties that are owner financed."

Does he own a portfolio of notes from selling his own properties via seller financing?

Or does he own a portfolio of property that was sold to him with the sellers carrying back notes?

No wonder Joe's comments didn't make any sense. I think John's group has an REI semantics problem (or strategy).

0 Reply

Greg H.Pro Member

Moderator

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

11y

Originally posted by @Account Closed:

Originally posted by @Greg H.:

Another Joe from Texas bites the dust ? I was really looking forward to the after pics of the 20K junker

What is it about the Joe's from Texas on BP? Those posts were getting so weird. Since when do we post before and after pics of properties we sold to someone else. I've sold many junkers, some with seller financing, and sorry to say I don't have before and after pics or take credit for.....work done by the owner. Those deals don't have cap rates either.

This is a great thread otherwise. Really interesting to me how many say they are flexible and doing it all when it makes sense due to markets and timing.

It appears that "Joe" has assumed another alter ego that prefers heels !

Katherine Dolgeh

Some people just think they are the smartest one in the room. Lol

1 Reply

Jay HinrichsBusiness Member

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

11y

@Greg H.

you would think they would change their pitch just slightly.

it reminds me of the west coast folks that front for marketing companies same line always.

" I live in CA and there is no cash flow so I only invest out of state and only in Turn keys"

that one is pretty idiotic as well.. but I guess a little more tolerated here on BP

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

1 Reply

Dale Plant

Investor · Saint John, NB · Member since 2014 · 21 posts · 4 votes

11y

Originally posted by @Dooreuhn Cee:

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

What's subtle about it?

1 Reply

Account Closed

Laurel, MD · Member since 2015 · 101 posts · 30 votes

11y

A little bit OT but I commented on that thread and have to bite on this one. I would not touch a $30k property if I could only receive $750 a month. My first property was a 20k SFH that needed $2k of work and came with a Section 8 tenant who was paying $928.

0 Reply

Douglas Quaid

Montreal, Quebec · Member since 2013 · 18 posts · 1 vote

11y

You do both.

Some properties are better off flipping, some much better off keeping.

0 Reply

Zach Adams

Investor · Vista, CA · Member since 2015 · 163 posts · 58 votes

11y

Originally posted by @Brandon Hall:

@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...

Brandon - Epic response. While I'm a buy/hold guy, this analysis really helped me. Thanks

Zach

1 Reply

David Krulac

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

11y

And for another thing:

Flipping is ordinary income, taxed at your highest bracket and you have to pay social security taxes also.

And as a flipper, you are ineligible for:

1. IRS Section 1031 Tax Free Exchange.

2. Long Term Capital Gains, lower tax rates.

3. Installment sales treatment, defer tax until income is received.

4. Passive income rules.

5. Dealer status

As a Buy and Hold, you are eligible for:

1. IRS 1031 tax free exchange

2. Long term capital gains if held for more than 1 year

3. Installment sales treatment

4. Passive income rules including no social security tax of 15.3%

5. No dealer status.

The Federal tax laws favor buy and hold over flipping and charge flippers much more taxes, income tax up to 43%+ and FICA up to 15.3%, whereas buy and hold taxpayers can pay 20% long term capital gains tax and ZERO social Security tax.

3 Reply

Brent Coombs

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

11y

A little bit OT but I commented on that thread and have to bite on this one. I would not touch a $30k property if I could only receive $750 a month. My first property was a 20k SFH that needed $2k of work and came with a Section 8 tenant who was paying $928.

Good luck getting more of THOSE deals! And please, don't change your strategy, because there are already few enough $30k deals for the rest of us that will gross 2%/m, leave alone the 5%+/m ones that you will only deal in. Cheers...

0 Reply

Buy and Hold, Does It Really Make Sense?

Buy and Hold, Does It Really Make Sense?

Most Popular Reply

167 Replies