Buy and Hold, Does It Really Make Sense?

Buy and Hold, Does It Really Make Sense?

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

I was once a buy and hold investor. Then one day, my light was turned off by the power company, in the house I lived in.

How could that happen? I had 40 houses, but I was always robbing Peter to pay Paul. Edison, the power company was Peter, so once they caught up with my tricks, my light was shut off.
I was frustrated and very broke. Then one day I attended Ron Legrand's seminar and he spoke about quick flips.
His presentation was so good, I paid to follow him to Las Vegas to hear more.

Since then, I have quick flipped over 400 houses.

So each time I hear new investors talking about buy and hold, I feel real bad. Today I ask myself, why would anyone buy and hold?

I once hired an assitant who is a real estate agent. During the interview, she told me she was an investor. Then I asked her, how many properties she had. She stated that she had three properties, one of them she had owned for over 12 years.

Then I asked her. "How much money are you making? She said Nothing, the rentals were barely breaking even and one was vacant.
Then I asked, "how much have you made in 12 years? Nothing she stated.

So the question is, does buy and hold strategy work for new or veteran investors?

This is a debate that everyone should contribute to?

Should you buy and hold? What if you are cash flowing a few hundred dollars a month?

Let's do the math. I buy a property with no money down. I flipped it in 90 days and made $40,000
You are a buy and hold investor, you buy a property, rent it out and you have a cash flow of $150 per month after paying your mortgage.

How long will it take you to accumulate $40,000? The correct answer is 266 months or 22 years.
So do you want to wait 22 years to make $40, 000?  or do you want to make the money now so you can accumulate enough $40,000 to actually pay cash for a few deals in a few years and then think about buying and holding? 

Which leads me to the one reason why buy and hold can make some sense.

If you are retired, you don't want to earn the peanuts interest paid by banks. It may make sense to buy a property cash, rent it out and get above average return on your money.

Another way it makes sense is if you are buying units and can buy enough and get to a cash flow that can replace your current income.

So let's hear from newbies and veterans, does it really make sense to buy and hold?

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Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes
11y

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

See this reply in the discussion

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  • Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 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.

     Took the words out of my month, depends on the deal, make take 22 years to sell some houses if at all.

  • Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    11y

    Love the subject,  "Flipping vs buy and hold", it gets you to think.  But, why not do it ("think") deal to deal.  If it makes money it makes sense.  Most people, will flip everything for the right price or hold that which they can't get a good return on the investment.

    I would flip everything if I could get what I wanted for it.  But, I hold because, I often can't get what I want at a sale.  Cash is King but, it depends on the deal before you.  got to do the Math on each deal.

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y

    Not sure how it got from "is holding a good idea" to flip vs. Hold.  In any case, why not do both?

    I flip TO hold.  Profits from flips give me cash to buy holds for all cash...then refinance that cash right back out, and use it again, and refinance it back out and,...

    While the initial flip to hold is repeating the refinance step, I'm back at the flip part starting another string of cash in/refi out strings by flipping another house.

    I wonder how many times I can do this?

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Joe Villeneuve

      how do you handle this when your at your 10 loan max?  is there local portfolio lenders in Detroit offering the good rates and terms... I know Brie Schmidt has been able to do this that is what allowed her to leverage up and get 40 doors in a year.

    its very much regionalized in my mind...

    I know there is B2R and other hedge funds in the lending space now.. however from the feedback I get from my Vendors they are very difficult to do deals with as they only value the asset at cost and then back out the equity.. So for those that bought years ago and have nice 50 to 100 or more home portfolios that are paid for they are a good resource to pull cash out.. for those buying in todays market in essence you will need 20 to 50% CASH into each home and that's the rub with those guys

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y

    @Jay Hinrichs

    There's a couple of different answers to your question about the 10 loan max.

    Based on strictly looking at the number, and assuming I want to continue to add more than 10 properties:
    1a - I just use partners that have the credit I need...and the open loan slots available.

    1b - I also can sell off a % of my ownership.  The cash generated here allows me to start another string of "cash-in/refi-out" deals with a different credit partner.

    ....keep in mind, when I refi I recover all the cash I put in, so I can take a smaller percentage return on each property and give the greater % to the credit partner.

    2 - With the cash flow I can get from each property, I don't need to have more than 10 properties to clear over $5k/month.  Now add the results from answers #1a & 1b above, and I have a continuing string of deals I can make...limited only by the number of credit partners I have access to....and, as the "spectators" see the success of other credit partners, finding new ones is not a problem.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Joe Villeneuve

      interesting model... is it like other types of bank debt were the equity partner can own no more than 20% of the asset?

    I assume you facilitate this for both the equity side and credit side? 

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y
    Originally posted by @Jay Hinrichs:

    @Joe Villeneuve

      interesting model... is it like other types of bank debt were the equity partner can own no more than 20% of the asset?

    I assume you facilitate this for both the equity side and credit side? 

    Actually, the EP has to own the majority...and be on the LLC. The loan is in the EP's personal name.

    ...and yes, we manage the entire thing for all.  Keeps it simple.

    When we do this, it is actually a 3 partner setup.  Cash, credit & management ...although any two of them could be the same person (partner).

  • Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Joe Villeneuve

     and @Jay Hinrichs

    We've exceeded the Fannie/Freddie 10 loan limit.

    1.  Put 10 Fannies in your name.

    2.  Put 10 fannies in spouse's name.

    3. Portfolio lenders have no Fannie 10 loan limit as they do not sell their mortgages on secondary market. we've been able to borrow from brick and mortar local and regional banks and credit unions. Typical investor mortgage will be 80% LTV, fixed for 5 yrs then adjustable. Look at doing one about a month ago for 5% interest, which I don't think is too bad.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @David Krulac

      you can tell I don't do this type of financing for a living.. can the wife get 10 loans if said wife is truly a housewife and has no personal income ?

    I have been with my commercial lender since 1992  same person all these years.. and I am happy to pay a little extra for that service and stability.

  • Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    your spouse would need to have income, but doesn't have to be a job/w-2 income to qualify for financing.

  • Nottingham, MD · Member since 2014 · 109 posts · 37 votes
    11y

    At the moment I do neither but I will add one thing I remember from about 2 years ago when I attended the 2 hour guru free pitch. The speaker said he does a couple of flips that creates cash to purchase buy and hold. Then does the cycle again. Of course this can be done with no money, no experience and on weekends.  :p

  • Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Robert S.:

    It makes a lot of sense for me. I make 12-17% ROI on my buy and holds. 30-50k homes in most cases. I love the cash flow!

     Hi Joe Pickett!!!  Still at it, I see!  

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y
    Originally posted by @Richard C.:
    Originally posted by @Robert S.:

    It makes a lot of sense for me. I make 12-17% ROI on my buy and holds. 30-50k homes in most cases. I love the cash flow!

     Hi Joe Pickett!!!  Still at it, I see!  

    new handle or another Pickett handle is now Joseph Pickett  funny guy

  • Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    You can't fault his persistence, that's for sure.

  • Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    11y

    @Richard C.@Jay Hinrichs

     We should start a "Where's Waldo?"- type thread, that would be fun! Kill two birds (or a bunch of aliases) with one stone...

  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    11y

    I don't want to hijack this thread, but can someone tell me why "Waldo" is forbidden on the site? I see his account getting closed as fast as he creates it, but haven't seen anything that would suggest he's scamming or anything. Maybe someone could just send me a PM... I would hate to make the same mistake this guy made :)

  • Clifton, NJ · Member since 2015 · 1 post · 1 vote
    11y
    It seems you were not "buying it right" in your previous buy and holds. If you did buy it right then you would have found yourself buying below market value, cash flowing, with an equity position, and within a certain criteria you determined. Making $40k in a quick flip is a great thing, but if you can make $40k with a flip then that tells me you have at least $40k equity in the property if you keep it...not to mention the additional appreciation you will get over time...now those two amounts combined would be much more than $40k and you would have another asset under your belt you can leverage. I'm currently on the fence with a property I'm buying on this exact topic so believe me I'm thinking through this myself right now.
  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y
    Originally posted by @Ronald Perich:

    I don't want to hijack this thread, but can someone tell me why "Waldo" is forbidden on the site? I see his account getting closed as fast as he creates it, but haven't seen anything that would suggest he's scamming or anything. Maybe someone could just send me a PM... I would hate to make the same mistake this guy made :)

     I wondered the same thing, so looked "Waldo" up. Here is one thread he recently started before becoming persona non grata, which caught the ire of @Richard C.:- http://www.biggerpockets.com/forums/522/topics/182...

    Looks to have some of the same "boasting guru" characteristics that Richard may be referring to above (but I think the one above is a different "Waldo"). Not sure of the specific naughtiness that may have caused his Account to be wiped. Be nice...

  • San Antonio, TX · Member since 2013 · 87 posts · 42 votes
    11y

    There are many factors and strategies to look at when investing in real estate.  No single way is "good" or "bad". My very first duplex I purchased I've been cash-flowing a net of $1,000/month, however if I were to sell it after the $7,000 I put into for down payment and minor cosmetic improvements, and the fact Buffalo Ny properties appreciate veryy slowly, I'd end up losing money.  So depending how you look at it, a 70k investment that grosses me $18k a year, having used little of my own money, or a house that I have almost no equity in, I'm either a genius or a fool. Sounds like a pitch for a seminar, or you just needed to find a new way to manage, and buy your properties..

  • Canton, OH · Member since 2015 · 21 posts · 6 votes
    11y

    I was able to financially retire on buy and holds, so I do think buys and holds are worth it:)

  • Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    11y

    @Ronald Perich @Brent Coombs Wasn't actually referring to anyone named "Waldo" on the forums. Here's the gist about what you were asking:

    Saying you're doing something you're not - BAD

    Saying you're not working for/representing someone else when you are -BAD

    Creating 800+ posts in 2 months about your super duper strategies which generates nearly 20 pages of rebuttals because none of it makes any sense -BAD

    Changing your profile periodically to show experience you don't have - BAD

    Things of that nature...

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y

    @Chad ClantonBoth Ronald and I know who this specific "Wally" is - we were both just trying to avoid using the word "Joe Pickett". Do you know which (or how many) of those BAD traits Joe showed - and has he since tried to reappear in another disguise? Hmmm...

  • Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    11y

    At least 3-4 that I know of or suspect

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Ronald Perich:

    I don't want to hijack this thread, but can someone tell me why "Waldo" is forbidden on the site? I see his account getting closed as fast as he creates it, but haven't seen anything that would suggest he's scamming or anything. Maybe someone could just send me a PM... I would hate to make the same mistake this guy made :)

    Funny.  I didn't occur to me that Seller Financing Joe of the Epic Cap Rates (and associates) is getting deleted or shut down.  Rather that they were closing their accounts and opening new ones themselves every time they were called out on the misleading or confusing marketing spin.  Josh and Brandon and moderators police for site rule adherence, not for bad business models or even known scammers.  That's why community members sometimes come down very hard on members offering bad deals.

  • Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    11y

    What's so amusing about it is that if he'd just spent as much time learning as he has posting in the past two months, he'd know a lot of what he needs to actually get started investing by now...

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