Flipping Vs Holding - What do you think ?

Question

I made a little infographic on flipping vs holding.

http://imgur.com/P4kUO5O

Joe Villeneuve · Answer

Very nice.  Here's the way I present it:

"Flipping can make you Rich, Holding makes you Wealthy...Rich has a Shelf Life, Wealth is forever".

Joe VilleneuveREcapSystemA2REIC

James Wise · Answer

I'd like to hold everything I ever bought.  But you need to generate that capital somewhere and selling is the quickest way to do that.

Joe Villeneuve · Answer

@James Wise Here's the difference.  My system of investing involves using cash or cash-like to buy so that I can refi.

• Property analysis gets me deals where I can force the ARV with my rehab.
• 75-80% ARV (higher than when I bought it)...no seasoning requirements.
• 2 months I have my cash back out and re-invested.  
• Carry up to 10 mortgages.
• I use Credit Partners to go beyond the first 10...my cash, their credit.
• I'm not waiting for a buyer that wants to negotiate and needs financing approval...which they don't always get.

I can turn the same cash over and over 3 times a year.

Joe VilleneuveREcapSystemA2REIC

Steve Vaughan · Answer

For me, different properties (high end SFRs vs blue-collar bread and butter) require different exit strategies.  High-end is flipped, bread and butter blue collar is held.  Multi's in general are held for a few years at  least until rents and condition are up.  For the most part I hold so I don't have to keep working at it over and over.

Walt Payne · Answer

@Tapan Trivedi  There is a WHOLE lot more to it than that!

Here is my comparison for riding a bicycle to driving a car:

A bicycle is cheaper to buy. A bicycle doesn't require gas. A bicycle is more ecologically friendly. More people are killed by cars than bicycles. A bicycle does not require insurance. No parking hassles or parking fees for a bicycle.

A car gets you there faster. A car takes a lot less physical energy on the part of the driver. A car keeps you more environmentally comfortable.

Hmmmm, sounds like a bicycle wins hands down, right? Or maybe it depends on your circumstances?

Flipping is not a BAD thing, or even a bad investment. Buy and hold has it's down side too. I do both, for different reasons. Oversimplification is not the way to educate people. Facts are.

Buy and hold based on guru methods is just as risky as flipping via reality show methods. Doing it right is what makes it less risky for either path. Take into consideration things such as financing amount and methods, exit strategies, skill and experience, neighborhood/location  etc, etc, etc.  and in the end they can carry similar risks, which are minimal, when done the right way.

Tapan Trivedi · Answer

Maybe a little bit of background on the reasons I made this might shed some light on a few of the questions that have been posed in previous posts.

My team and I run the Sacramento Real Estate Club - appropriately domained  at www.sacramentorealestateclub.com . (We are not that innovative .) Almost every WEEK we have people contact us who go to the Flipping Guru Courses . It's the same story every week. We took this course now let's do a deal and start cashing huge checks. But almost always they have not put the homework down to make their business happen.

They have NOT evaluated numbers on the required numbers of properties so they have no clue how much the rehab is going to cost. They haven't put the time in to find the realtors that can feed them deals, they haven't put the time in to walk the flip friendly neighborhoods etc etc etc. All they have is 4-12 days of class room education masquerading as we have enough.

Me and a few of the people who run REI Clubs in Nor Cali are for one getting to a point where we need to put something up on our websites to combat this before it happens. This infographic is a first step towards that.

Lets face it. Flipping is VERY lucrative. I have done a lot of it. I have flipped and I also hold. But flipping is not a blanket strategy. Flipping is a very flowing strategy and you have to anticipate and work alongside the market and ALL your gains in the beginning can be wiped off pretty quickly at a slight change in the market. Flipping - as I have repeatedly said - is NOT for everyone. I want people to understand that. It looks easy on TV but its because they don't show EVERYTHING that goes on . Most of these flipping shows (pun intended) don't really have anything on them about holding costs and a couple of four day bootcamps don't prepare you for the realities of flipping. Worse- they take all your money and leave you damn near broke. How can you PAY a GURU 39k and not have ANY marketing money left over ?

Enough ranting . Now lets go create deals.

Sincerely, Tapan Trivedi

Chris Simmons · Answer

I used to plan on being a big time flipper but the reality of the work and low average potential profit in my area, Tulsa, (lots of competition and low appreciation rates) has put me firmly into the buy and hold camp.  While I have not lost money on a flip, I have at times walked away from one thinking i could have flipped burgers somewhere for 3 months and made more money.  I had a few money makers but due to my day job, the tax consequences of successful flipping are harsh.

Due to my day job, I can allow the rentals to pay for themselves and pay down debt.  If on occasion I come across the right deal and can flip it, I have had luck going in phases.  I will buy it and hold it for a year or two as a rental after minimal work was done to get it rent ready.  After it generated some cash and the renters have decided to move on, if the market is right, I will then go in and do the necessary rehab to flip the property and gladly pay the 15 cap gain tax.  Excess proceeds gets applied to debt on other rentals.

That combined with an occasional cash out refi on a single family unit is how i generate and replenish my capital.  That said, I am very small time with only 3 rentals now although I am about to close on 3 duplexes soon.  I am firmly anti partner and want absolute control so for now, I have been limited to what cash I had on hand and could borrow.  At some point, I will figure out how to solicit loans from non bank investors with favorable rates....Retired people etc and hopefully fuel growth that way.

Hopefully in about 10 years, when I turn fifty, I can leverage these properties and others I have acquired and get into some decent sized, multi family unit and retire from my day job and focus on managing my properties at that point.  Who knows really.  I am avoiding the  commercial lending side for now and sticking with the more consumer friendly loan products for now.  I will have to go to the commercial, judgmental underwriting side eventually, but I want to make sure that I am well capitalized for that event.

Walt Payne · Answer

@Steve Vaughan  I agree totally. It was the blanket generalization that Flipping = bad, hold = good that I disagree with. Both have their place, both have their risks.

James Wise · Answer

@Joe Villeneuve I'm aware of how refinancing works. ; )

I have done this many times. However waiting 6-12 months to get a new appraisal so I can continue with more capital then I started with is a drawback.

Other points.

Not everyone who has a home they paid cash for is going to qualify for a resi. mortgage

Property rents so do a commercial mortgage?.....2 years of rental income needed.

Joe Villeneuve · Answer

@James Wise "I'd like to hold everything I ever bought.  But you need to generate that capital somewhere and selling is the quickest way to do that."

Not true.  If you buy with cash, or non-lien-able debt (cash like substance), you can refinance your cash out of the most recent property to use again.  Faster...much faster and cheaper.

Joe VilleneuveREcapSystemA2REIC

Flipping Vs Holding - What do you think ?

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