Flipping to support my buy and holds habit

[Drew Y.]

I decided last year to embark on a different strategy than my normal buy and hold investment strategy given that the market for buy and holds in California has become a lot more difficult where we have seen CAP rates move to less than 4 in some areas (San Francisco, Bay area) and only 6-7 in sub markets such as Sacramento and Stockton.

The math has been pretty straight forward. Flipping California properties 200-500 acquisition price points with normalized net returns of 15% has allowed us to capture between 30k-75K per project average to around 52.5K per project. This approximately gave us 250K to buy a passive purchase all cash and not have to worry about the interest payments, giving us the option of cash out refinancing or keeping our powder dry for other future acquisitions.

I most interesting thing about this decision though is it has change the mindset of my previous investment strategy. Moving to a dedicated flip 5, buy 1 buy strategy,  help me move away from a "transactional" mindset , flipping with no goal other than to increase the size and volume of flips (which was becoming exhausting) to a grower mindset. The flip 5 , buy 1 strategy has allowed me to take my profits off the table while intentional growing my passive income stream and reducing my portfolio risk. By planting these fixed seeds that are and continue to pay dividend, it stabilized my income flows and concurrently allowed me to build up reserves for additional purchases. 

We are currently working on 3 flips in california and 2 in florida right now and will be heading out of state for our next buy and hold. I am excited about this mental shift and it has been a refreshing way to change the transactional mindset that flipping had become. 

Free Advice: Create two LLC's one for flipping and one for your passive as this will prevent domino effect if one aspect fails and make sure you setup proper firewalls to prevent commingling funds.

[Jon Crosby]

@Drew Y.  I don't know if I'm more impressed with you on an elephant or this really cool investing strategy, but either way, wanted to just say well done!  

I know of many people getting into REI using wholesaling as a capital growth strategy but that's not for me and I think I would really enjoy this specific strategy you are talking about here to be honest. Mindset and goals are everything and when the numbers can lay the course you are gold!

Great job once again!