Buy and hold or flip?

Question

At present, I have 5 residential rental properties. Not a bad gig. I like the monthly cash flow, the market value appreciation, principle pay-down and the equity I've built through rehab. All of them are cash flowing. But... I also like the idea of buying properties from wholesalers, fixing and flipping. Should I hold onto my rentals? Or should I sell them to free up cash for investing purposes?

Account Closed · Answer

If these properties are performing and you would not otherwise be looking to offload them then you might be better served to find the capital elsewhere, if possible.  Done correctly you can invest with little money out of pocket.  Plus, there could be tax ramifications of selling your rentals.

Lots to think about...

Jennifer Dean · Answer

I agree with @William Hochstedler.  I think its smart to keep your properties and just juggle around some equity to take out to help fund your projects.  You could try out some lease/options as you are able to collect a chunk of change up front.  That way if they did end up acting on the option, you wouldn't incur as much for the cost of selling, and you would be getting a higher than market rent along the way.  If they don't act on it, then you can just do it again.

William Hochstedler · Answer

@Rod Hansen

Selling a property to buy another property of the same type in the same market almost never makes sense because of costs of selling, acquisition, and tax ramifications.

Also, with your current portfolio, you may be in a position to hammer on your debt through debt snowballing.  If you could free up a bunch of equity in a single property, that could be your source of funding for getting into new deals.

Moreover, real estate swings are incredibly cyclical.  It may only take a small interest rate hike to take the wind out of owner-occupant frenzy going on right now.

As far as buying from wholesalers, you can pay more than the competition if your strategy is buy and hold--again because you don't have the cost of selling.  Folks here are calling it the BRRR strategy (Buy/Rehab/Rent/Refi).

Patience and diligence will win the day.

Hugh Ayles · Answer

I am also in a tight market.  We buy from wholesalers and use HML and still get decent returns.  For now we are acting as our own GC and doing some of the work ourselves.

Rod Hansen · Answer

Thanks Vincent! I appreciate your feedback. I agree, lots to think about. Real estate can be done without using my own money. However, I'm looking to buy from wholesalers so profit margins are already tight, especially in a competitive Utah market. Seems like every time I run the numbers, the profits are so slim when using hard money it's almost not worth doing at all. I haven't found any private money yet. I'm feeling like if I use my own money I'll have a better chance at bigger pockets.

Buy and hold or flip?

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