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.

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

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.

Ryan Thomson · Answer

I do this exact thing, but I'd add one wrinkle worth thinking about.

The strategy you're describing is essentially subject-to (taking over the existing loan without lender involvement). It works, and the seller financing piece keeps it clean. But the "no banks involved" part is a double-edged sword. You're taking on a loan in someone else's name, which means due-on-sale clause risk if rates ever drop and the lender starts looking harder at their portfolio.

What I've shifted to instead is formal assumption through FHA and VA loans. Every FHA and VA loan is assumable by law, lender is fully involved, title transfers cleanly, and you're on the note. Slightly more paperwork (45-90 days, about $750/side) but zero due-on-sale exposure.

The math on the current inventory is hard to ignore. I'm working deals right now with rates in the 2.75-3.5% range. On a $400k loan, that's roughly $975/month less than a new loan at 6.8%. The equity gap is the puzzle to solve (purchase price minus remaining balance), but on deals where the seller doesn't have a ton of equity, the numbers are extraordinary.

Your off-market, no-agent approach is actually a great fit for finding these. Sellers with 3% loans who need to move but have equity gaps are harder to sell conventionally anyway. You can often structure a second lien or seller carryback to bridge the gap.

Not saying your approach is wrong. If the numbers work and the seller is fine with it, sub-to is a proven strategy. Just worth running the comparison on any deal where an assumable might be available.

Igor Ganapolsky · Answer

David's numbers on tax sales line up with what I'm seeing in Florida. I've been doing tax deed auctions down here and picking up properties for 60-70% of market value which gives you instant equity like strategy #2 but without the wholesaler markup. The trick is doing your homework beforehand - checking title status, estimating rehab costs, and knowing the actual ARV before you bid. It's competitive but you can find some solid deals if you're patient and do the research.

Which strategy do you like more and why?

Which strategy do you like more and why?

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