Buy and hold vs rehab ARV equation

2 Replies

I'm a wholesaler and have some cash buyers who do like to buy and hold. I have done a few wholesales to buy and hold and it seems like I can get more cash out of the deal rather than a full fix and flip cash buyer. Makes sense when the house does not need a lot of repairs to be a functional rental and of course you would not put the money into the house as if you were going to get top ARV just to risk having a renter come in and ruin it. Anyone else raise the purchase price knowing that a cash buyer will pay more for a good rental that needs minimal work to get it rented? And if your a cash buyer do you pay more for your rentals than your full rehab and sell properties?????

Hi Mike, 

As a cash buyer of both rehabs and rental properties, I will share what I look for. 

As you know, with a single family rehab, I am simply interested in the ARV the house would bring if sold on the open market to your everyday homeowner. Using comps and market data, we are able to estimate the ARV.

For rentals, my interests are completely different. In any rental, I am using a combination of several metrics to determine if the investment is something I am interested in. Perhaps the most important metric is the NOI and monthly cashflow. To determine this, I need to have confidence in the expected rents and the major operating costs (taxes, insurance, property management, etc). In addition, I may consider using some form of private money on the deal. This would certainly have an impact on my cashflow. As a wholesaler, Its hard for you to make assumptions about my financing needs...but you should keep it in mind.

If I were getting a deal from a wholesaler, I would appreciate an analysis that lays out the projected repairs needed, the estimated rent, and the estimated operating costs of the property. This will allow me to run my metrics to determine overall return. 

I think its realistic to assume a cash buyer may be willing to pay more for a rental property. If the property generates positive monthly returns, its logical that a buyer would pay a premium to benefit from those returns for 10-20 years before selling.

You might want to present deals with multiple exit strategies (Sell or hold for rental). This will show your cash buyers that you understand the various ways to go about the deal. 

I hope that helps. Feel free to reach out if you would like more detail. 

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