How Do You Decide Between a Flip or Hold?

Question

Sometimes the numbers work both ways—flip for cash now or hold for long-term wealth. How do you decide? I’m curious what formulas or rules you follow when making that call.

Min Zhang · Answer

Hey Brandon! for me it comes down to weighing the time and effort against the return, because if the flip profit isn’t significantly higher than the equity I’d gain by holding, I usually lean toward keeping it as a rental. I’ll run the numbers both ways, then also factor in how much cash I need back for the next deal.What’s been your biggest deciding factor? cash flow, appreciation, or just personal bandwidth? Happy to keep the conversation going!

Arman Ahmed · Answer

@Brandon Lee

Brandon, I usually let the numbers and the market tell me which way to go. If I can force enough equity with rehab and walk away with a strong cash-on-cash return quickly, I lean flip. But if the property cashflows well after financing and fits into a neighborhood with long-term growth potential, I’ll hold. One quick rule of thumb I use: if I can get at least 20%+ ROI on a flip versus stable 8–10% cash-on-cash on a hold, I’ll flip. If cashflow is strong and I’d regret selling in 5 years, I hold.

Joe Villeneuve · Answer

IF you buy without a plan, then figure out what your profit would be on a quick sale.  Then, take your projected cash flow, per year, and see how long that CF will take to equal the profit gained now.

This is important, because if you take the profit, you will most likely roll that forward into a new property, which should make you a higher profit.  Every RE transaction should be looked at as flipping your cash, not your property.  The property in question is nothing more than the vessel your cash is sitting in, while it waits for the next vessel.

Don't get blinded by high cash flow.  I love it, but there's a time and place for it.  Sometimes taking the profit is better at the time.  Later, that exact same choice might be the other.

Nick Belsky · Answer

@Brandon Lee

If you can rent it and cash flow well enough, then keep it.  If not, sell it for immediate profit versus long term game.  We always go into a flip with the intent to sell.  But, once completed, if we find we are able to get higher rents and it meets our minimum monthly/annual cash flow targets, then we refi to hold.  We balance between the two and it's deal by deal.

Cheers!

Joe Villeneuve · Answer

This is a proactive decision.  Whichever choice you make is predetermined and the reason why you bought this property in the first place.  Having a 2nd option just means you have an alternative direction if the property doesn't pan out for the initial reason why you bought this property.

What I'm saying is, the direction you choose is based on your master plan of how you are going to move your cash from this property to the next.  If you approach REI one property at a time, don't bother.