Flipping versus Buy & Hold Strategies in Michigan

A real estate investor’s strategy should take into account goals, cashflows and the property.

Over the years the debate between these two strategies has left a lot of real estate investors believing the two are mutually exclusive.

Many investors though, should be studying how they can leverage the two for even greater returns.

Let’s study why most investors think the two strategies have to be “one or the other”.

The biggest arguments Flippers have going for them against the Buy & Hold strategy:

  1. Flippers make money when property values are going up or down.  Buy & Hold only makes money when values go up.
  2. Flipping allows a real estate investor to “quit their day job” and invest full time.  Buy & Hold doesn’t generate enough income to make that possible.

Now let’s look at the arguments Buy & Hold investors make against Flipping:

  1. Buy & Hold builds up cashflow so a real estate investor can quit their day job.  Flipping is really only trading one day job for another.
  2. Buy & Hold allows one to become an investor and build up long-term wealth.  Flipping doesn’t provide a retirement exit strategy.

As you can see, there are strong arguments from both sides.

We don’t think the two strategies should be mutually exclusive or a choice between one or the other.  How successful is a real estate investor who can’t retire because they need to keep Flipping to generate income to live off?

Think of it this way, even successful Flippers have to invest their profits in something so they can retire.  What’s better than real estate since they know it so well?

So, we can make a strong argument that Flippers should consider a Buy & Hold strategy on the occasional property for the following reasons:

  1. Over time a Flipper can build up a portfolio of cashflow generating properties that creates income to live off.
  2. Having cashflow will allow a Flipper to avoid stretching to buy a property to flip because they need some income to pay their bills.
  3. Just as Flippers need a solid exit strategy for a property before buying it, Buy & Hold can provide them an exit strategy for their careers as Flippers.

On the other hand, it is possible to pursue a Buy & Hold strategy without Flipping.  Many real estate investors that don’t want to or don’t feel comfortable, quitting their day jobs, invest in cashflowing properties.  They do this to supplement their retirement plans, as part of a plan to eventually leave their day job or a combination of the two.  There are times though, when a Buy & Hold investor should consider Flipping/Selling one of their properties:

  1. Most Buy & Hold investors rehab a property upon acquisition or after a tenant has trashed it.  The best time to Flip a property is right after rehabbing it.  So, Buy & Hold investors should consider Flipping a property they’ve just rehabbed if they can get top dollar for it.
  2. The recent real estate market has shown us property values don’t always go up.  Buy & Hold investors should consider Flipping their properties if they notice property values slipping nationally or regionally where they have their rentals.
  3. Buy & Hold investors should “play Monopoly” with their portfolios.  The whole strategy of a Monopoly game is to increase your property holdings from single houses to multi-family and hotels to generate more rent.  Buy & Hold investors should consider this as a long-term strategy also.  Pursuing this strategy will usually require an investor to Flip their portfolio, often through a  1031 Exchange to defer capital gain taxes.

What properties should Flippers consider a Buy & Hold strategy on in Michigan?  No answer is applicable 100% of the time, but the following should be considered:

  1. When listing a property for sale, also list it for top rent.  If you get an offer to rent at top dollar before getting a purchase offer, consider taking it.
  2. Strong consideration should be given to renting to a tenant that shows a strong desire to eventually buy the property.
  3. Be sure the property is in an area that’s a strong rental market and not over-saturated.

Of course, if a Flipper is going to Buy & Hold a few properties to rent out, they probably shouldn’t take time away from Flipping to play landlord.  That’s where we can assist in Michigan and hope to earn consideration to be hired to do so.

Posted in: 1. Property Owner Blog Posts, Investing Strategy

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