How important is the "buy" in a buy and hold?

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I'm interested in knowing what

Adam Bartomeo · Answer

My strategy is that "buying right" is THE most important part of any deal. When people tell you that you can over pay because you can make it up in the long term, they are just wrong. Unless, you have a lot of cash or you are only looking for one property, this kind of thinking is risky and dangerous.

You should always look for exits in case something goes sideways. How many exits do you have if you over pay, 1. Hold on to it until you can sell.

If you "buy right" you can:

1. Sell it the next day

2. Fix and flip

3. Rent it and sell it later

4. Rent it, refi, sell later

5. Or hold for the long term.

When I buy a property I know that I made money before I even close. My most recent purchase just appraised for $135,000 over the accepted offer. I can do anything with this property and make money.

Do NOT get impatient and STICK to your numbers. If you want to move faster, expand your search area.

Mike Pena · Answer

Some really good points. It looks like knowing your market and forming an exit strategy are some key areas to look at.  Thanks everyone!

@Ian Hoover I don't just look at CoC ROI. It is just one of my benchmarks. I am an accountant at a CPA firm, so tax is always on the mind. One of the markets I am looking in sounds similar to yours, solid buy and hold with CoC ROI 20-30%. Rents well above the 1% rule. I think I initial thought I would buy and have an initial 20% appreciation but definitely not the case.

Gino Barbaro · Answer

@Mike Pena@Jake Stenziano

Hi mike

It all depends on your strategy. I personally feel that you make money in real estate when you but correctly.  If you buy an asset under market price, reposition and force appreciation, you can refi and pull equity out. Your return will become infinite if you can extract money in deal.  You just repeat this strategy a few times and you will become wealthy

It may take a couple of properties to "buy right" but if you do, then you will become financially free and investors will be lining up at your door to invest

It took me a while to understand the concept but fully embrace it.  There are plenty of these deals out there. Look for motivated sellers and network to find the deals

Good luck

Gino

Steve Vaughan · Answer

Your question is perfect for what I'm dealing with just today @Mike Pena.  Be careful not to become a 'motivated buyer' just to ink any deal.  It has to make sense from a value perspective or a cash-flow perspective.  Perfect properties have both.

Is your area growing? Do you foresee price appreciation for the next 3-5yrs?

I am considering paying FMV for a single-family in my area because of great terms and this tired landlord has 6 other properties.  I find myself trying to justify the valuation and needing to stretch the am schedule out on our seller-carry to 40 years to break even monthly.  What??  Can't believe I am actually considering it, but I don't see the appreciation train stopping anytime soon in this area.   Need to sleep on it.  At times we all come across these same questions.  Thank you for asking them today!

Ian Hoover · Answer

There are too many variables that go into a buy and hold purchase and everyone has their own strategy, sometimes you will have to miss out on some nice properties because the buy does not make sense but if you have put in a ton of offers and none are being accepted then you probably need to re-evaluate your strategy.

If all you are looking at is straight COC ROI you might be missing the boat on some other things, do you ever take in to consideration the tax benefits to buying a long term rental? That alone could double you COC ROI depending on your situation and how much you pay in taxes.

My market is a solid buy and hold, every day I have deals come across my desk that are in "C" areas and if you are leveraging you could see COC returns of over 20%.

Hope this helps.

Larry Turowski · Answer

@Mike Pena It depends on your business model.  You can make up the $3K or $5K extra you pay on cheap properties on rent.  Not so for moderate to nice properties, which is what I buy, so I have to buy right.

Drew Castleberry · Answer

Obviously you want to get the best deal as possible, but if you analyze the property enough and as long as the numbers work, there's nothing wrong with paying asking or above asking price to land a deal. A profitable deal is better than no deal (now granted, don't just take any deal, make sure it works in the short and long term).

Personally my first house hack was an REO and I had to pay $10k over asking to get it because the market was so competitive. As much as I hated to have to spend that extra $10k, it was worth it, because 1. I knew the market and 2. knew how much it was going to cost to rehab.

Mike Pena · Answer

You are exactly right, @Larry T. I had to remind myself of my business model when I made my last offer, which was accepted.

Mike Pena · Answer

Good point, @Drew Castleberry.

I missed a few deals that after finding out what the properties closed for, I would have probably paid the same.  Thanks!

How important is the "buy" in a buy and hold?

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