Which strategy do you like more and why?

Question

For my Buy & Hold properties and I have been buying using two different strategies and I'd like to know which strategy you like more and why.

Strategy #1 - ON-Market with Seller Credits

I pay market value on the MLS and get a 10% commission from the seller that my lender allows me to apply towards my 20% DSCR loan down payment (they have also allowed me to do this on conventional as well) and I get a $5-8k concession from the seller to cover all my closing costs and buy my rate down a little bit (DSCR loan concession limits can be 6% instead of 2% for conventional investment property loans). With this strategy my net out of pocket is 10% of the purchase price and I'm only buying deals that cash flow on day one with very little to no rehab. A recent purchase was $220k, so I'm $22k cash into the deal (minus security deposit and pro-rated rent because it was tenant occupied), I don't have much equity (only 20%, which would all be gone if I sold I'd be able to return my capital and then break even), but it cash flows $150 per month and will improve over time. This is a super easy deal with little money invested.

Strategy #2 - OFF-Market at a Discount

I pay below market value from a wholesaler using a private money lender with a 10% down payment, I improve the property (cosmetic rehab), rent the property out and then do a rate and term refinance (with no seasoning period). With this strategy I'm out of pocket 10% of the purchase price, plus closing costs, plus the rehab, but I have created more equity and it cash flows a little more, but not percentage wise because I have more cash in the deal. A recent purchase was $188k, so I'm $19k cash into the deal plus 2 months pre-paid interest on the private money loan and all closing costs on the purchase, plus $8k rehab, so all in cash is about $34k (minus a few thousand on the cash back from the refinance, security deposit and rent collected the month before the mortgage is due),  then I do a rate and term refinance at a little higher loan amount, so it will cover all the closing costs, buy the rate down a little bit and give me a couple thousand cash back, I have about 25-30% equity (which I could make a small profit if I sold I'd be able to return my capital plus about $10K), and it cash flows $200 per month and will improve over time.

This deal has a few more moving parts with the rehab and refinance, and has a little more money invested, but it has created a little more equity.

I'd like to know which strategy you like more and why.

Patrick O'Sullivan · Answer

I’d lean toward #2, assuming the ARV and rehab numbers are conservative.

The biggest difference to me is that #1 is primarily optimizing cash-to-close, while #2 is optimizing your basis. Seller credits and favorable financing can make a market-price purchase very capital efficient, but they don’t protect you much if rents soften, values decline, or an unexpected repair hits.

With #2, you’re putting more cash and effort into the deal, but you’re getting additional equity in exchange. That equity gives you more options later—sell, refinance, or simply have a larger cushion during a down market.

That said, I wouldn’t automatically choose #2 just because it’s off-market. The source of the property matters less than the actual numbers. If a wholesaler marks up a property enough, an MLS deal with a motivated seller could easily be the better buy.

I’d compare them based on total return on cash invested rather than cash flow alone: cash flow + principal paydown + equity created at purchase/rehab. I’d also stress-test both with vacancy, repairs/capex, and a refinance rate higher than expected.

If #2 still wins after those assumptions, I’d take #2. If the extra $12k or so invested is only buying a small amount of additional equity and $50/month of cash flow, I’d rather have the simplicity and liquidity of #1.

Michael Eskenasy · Answer

I like #2 better, but I’d probably run a third version that combines the best parts of both.

With #1, the seller credits and commission treatment make the cash-in number attractive, but you’re still buying at market value. If the market goes sideways, there isn’t much margin for error. The $150/month on $22k is roughly an 8% cash-on-cash return before reserves, which is fine, but most of the deal depends on long-term rent growth and appreciation doing their jobs.

#2 has more execution risk, but I prefer owning the basis. You’re buying below market, forcing some appreciation through the rehab, and ending with 25–30% equity. Even though $200/month on roughly $34k looks worse from a pure cash-on-cash standpoint, you’ve created another layer of return that #1 doesn’t have. Assuming the ARV is conservative and the refinance works without hero assumptions, I’d take that trade.

My #3 would be a hybrid: hunt stale/on-market properties where you can get both an actual price discount and seller concessions, then target only light cosmetic/value-add work. Basically, steal the easy transaction mechanics from #1 and the basis/equity discipline from #2.

So instead of paying $220k because the credits make the cash-to-close work, I’d rather find the $220k house that has been sitting for 70–100 days, buy it for $195k–$205k, still negotiate closing/rate concessions, put $5k–$10k into obvious improvements, and hold it. No wholesaler spread, less rehab/refi risk, but you still enter with equity.

For me the hierarchy is:

#3 hybrid > #2 > #1.

Credits disappear at closing. Basis stays with you for the entire hold.

If you want, send me the numbers on a couple of these and I’ll pressure-test all three strategies side by side.

David Krulac · Answer

@Josh Young  After buying and selling over 1,000 properties for my own inventory, I don't recall ever using a wholsesaler.  Their asking price and ARV have often been overstated and the repair cost understated.  When I wrote my book, I quantified the sources of the deal.

Verbal Auctions    58%

Tax Sales             31%

MLS                    25%

FSBO                  19%

Estate/Probate    15%

Sealed Bid Auction 15%

Word of Mouth      13%

VA Repossession    10%

HUD Repssession    6%

Bank Repossesison  2%

Relocation Company 2%

Life Estate               1%

The numbers total more than 100%, because some properties were in more than one catagory.  Since then I also bought a property that was a Reverse Mortgage Foreclosure, also

Which strategy do you like more and why?

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