Don’t Sell Your Real Estate Holdings Just Yet…

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In 2011, I was flipping homes in Las Vegas with decent returns. I enjoyed taking a dilapidated house and giving it a makeover, but more importantly, I enjoyed the profits, which if annualized, could end up somewhere in the 60-70%. I was ready to ramp up deals and become a flipper full time.

But in 2012 my plans were wrecked by the Nevada legislature, which decided to stem the flow of foreclosed homes from a flood gate to a dribble. Suddenly it became extremely difficult to find a home to purchase to flip. I was getting outbid left and right. The numbers started to not make sense to me.

The rapid rise in home prices from 2012 to 2013, I think, is mostly attributed to the banks and government’s artificially lowering the supply of homes. The subsequent lack of supply changed the dynamics as sellers now became much more powerful than the buyers. Many real estate professionals and investors saw it coming, but I don’t think they believed the change was going to be that drastic.

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The Changing Market Forced Me to Change

At that turning point in early 2012 I was forced to become more of a passive investor. Certainly I wasn’t going to be selling homes anymore. If I flipped a home, where would I find the next one? Would it take months before I can get a deal? I did not have a reliable pipeline to continue flipping. On the other hand, rentals became more attractive as it provided me with cash flow all the time. It was consistent (well, as consistent as your tenant is willing to pay you). It would last forever if I were to keep on renting. Whereas in every flip, I would lose the home I have and I would have to find a new one. It lasted forever only if I could keep it going forever. As we witnessed in the crash, it would be difficult to keep a flipping game running forever.

Looking at my portfolio I knew I was not fully capturing one the bigger real estate opportunities of my lifetime. I had some rentals but not enough. So I switched gears and learned about using seller financing as a way to expand my portfolio with my capital. I found a good window of opportunity in which I bought a decent amount of inventory before the market truly shot up.

What If?

When I revisit the prices of homes I sold these days, I notice their values have shot up tremendously then. If I hadn’t sold those flips at that point and just rented the homes out, would I have achieved a higher return? The answer is yes (especially with seller financed homes, in which I put very little capital down – certain homes I have already doubled my investment).

Would I sell them now given now the market has gone up 40-60% since I started? No. I won’t be flipping my investments in the near future either. I believe the market still has a lot of room to go up. We might get some dips if the artificial low supply is reversed, but asset prices will continue to rebound far into the future. I notice some investors are already looking to exit now to lock in their profits. But if I sell all my holdings like them now, I will just end up buying new properties at a much higher price. What would be the point? Nothing. And I would get taxed for doing that!

I believe the market has another 100+% to go. If I am patient enough and keep all my real estate holdings, I can stand in for a much bigger gain. It is almost like the stock market. Why sell at $2 from $1 to lock in profits when the stock can go up to $10? If you exited at $2 but bought back in $2.50, what would be the point? In all honesty, being a passive investor takes a lot less work than being an active one. I could be flipping homes left and right and I would be hard pressed to chase the similar returns I’ve gotten from just holding the property from day one. Maybe it is because of the messy markets right now. Nevertheless, I think investing long term and not chasing deals will ultimately serve the investor with greater benefits.

Photo: rightee

About Author

Leon Yang

Leon Yang is an active real estate investor in Las Vegas. He is a buy and hold guy who also likes to flip from time to time. His main passion is to traveling to the less traveled places and inspiring others to become financially independent through real estate.

10 Comments

  1. Great points, Leon! If I had more investment capital I would definitely have more rental properties. Finding seller financed deals here (SC) is not very common. Glad to see that it is working well for you! All the best.

    • Leon Yang

      Thanks Shaine! Finding seller financed deals can be tough depending on the market. Lately in Vegas I’ve been taking less than ideal deals because the market conditions have changed. Nevertheless, I’m trying to expand quickly before the market changes again so I’d rather buy more than to spend a lot of time to find the next gem.

  2. Leon, I started investing in real estate in January 2011, after pulling out of the stock market. My strategic plan was to first purchase ten rental properties, mid to high end areas, and create as much equity as possible. At that time, we can many good choices to pick from. After buying the ten rentals, we would move to flipping one or two properties, per year. We have 8 of the 10 properties. Right now, we are keeping approximately 60% of the gross rent and operating with the other 40%. The 40% pays the mortgages, taxes, insurance, and property manager. If we stopped right now and were able to maintain at this level, we would be set for the long term. Our gross rent is just under 100K. So, for what it is worth, you may be on the right track, seems to have worked for us here. But, we used all of our money, paid a minimum of 25% down, and with the low interest rates, the mortgage payments are very low. Our highest mortgage payment is $700.00, and that property rents for $1400.00 monthly. Its the same for the other properties or better. One mortgage payment is $433.00 and the property rents for $1350. So, if this maintains till will get the mortgages paid for, hopefully, our new investment will serve as our retirement, along with our current employment.

    • Leon Yang

      That’s great to hear Randy! Looks like you have the long term plan all set indeed. Unfortunately I can’t get a bank loan since blogging doesn’t pay me quite enough! Haha. They are tradeoffs between traditional bank mortgages and seller financing, and as of right now, I’d take the hit on interest rates to expand my portfolio beyond the 10 limit.

  3. Hey Leon,

    I don’t know the Vegas market so I don’t know if you thoughts on things going up another 100% make sense or not.
    Are there fundamental reasons that prices are going up or just the artificial lack of supply?
    If that is the only driver to move prices up I would think that holding out for another 100% increase in value is a big role of the dice (Haha.. Vegas and dice didn’t even think about what I was saying. 🙂 ).
    Vegas had been a pretty stale market for 15+ years from the mid 1980s until the early 2000s when it went into full on bubble mode then epic crash. Now it seems to be resembeling the bubble years.

    Maybe there are great reasons to think Vegas is on a real upswing, as I said I have no idea.
    I was looking at a chart showing the impressive appreciation there over the last year but it also showed it was the worst appreciating market (out of 381) the last 5 years, the bottom 1% over the last 10 yeras and the worst (out of 368 markets) over the last 20 years. Prices are only up a grand total of 7%.
    So if you bought Vegas properties in the early 1990s figuring you would hold them 20 yeras and cash in the equity buildup to live the good life it turns out you would have done better with a passbook savings account…

    • Leon Yang

      Prices are going up because hedge funds are moving in and banks and government created the artificial lack of supply. As to whether how this will play out I’m not 100% sure. If the market falls back down, I’ll buy more. If it keeps going up, frankly I’m not sure what I would do. Hedge funds alone are not enough to cause a gigantic bubble in Vegas, it has to come from average Joes diving, who are not able to right now because there is no supply. At least that’s what I think.
      Timing real estate trends can bring tremendous wealth. With that being said, you have to understand the fundamentals, economics, crowd psychology, and etc etc. It is not easy to learn but can be extremely rewarding even if you don’t time it 100% right.

  4. Hi Leon:
    We started our investing career buying holds. Now, 10 years later, we’re doing flips to pay off all of our mortgages. Why would we sell our rentals? Rents go up and mortgages pay down. When everything is paid off, you have amazing oil wells just pumping out money every month.

    Like you said, I see flipping as a job. Sell one, have to do it again. When holding, you get to a stopping point (how many do you want to hold?). It’s the holds that create the generational wealth. Ours will pass on to the next generation. Owning real estate rocks.

    To your success!

    • Leon Yang

      Great to hear Karen! I would have refinanced out of those homes to buy some more. But again, that’s just me! The cashflow game is definitely the way to go. I’m just waiting for some more crazy appreciation before I sell some to pay off all my debt.

    • Randy Smith on

      Karen, you are my new best new friend!! I just fell in love with you :)) We have right homes right now, that produces just under 100k annually. We operate on 40% and live on the 60%. It’s been the best investment we have ever made. With every thing, you wonder well it last? Your comment have me the encouragement I needed to hear to move forward. Afterwards, we may flip three or four homes a year as a bonus our to pay down mortgages.

  5. Jose Gonzalez on

    Hi León,
    I agree with your thoughts totally but still you are missing something. If you consider long term rentals and appreciation.. the relationship between rent to cost ratio gets ridiculously better. I have met some people (I will consider them mentors even when they don’t know) they bought properties 15-20 years ago at prices that now with each monthly rent they pay their original cost every month! So if you now have a property that you bought at 60k and rents for 1,000.. as inflation makes its impact well you will have your asset payed off so many times that will never make sense to sell it for a capital gain… Cash flow is just way sexier in many ways!

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