Starting Out - Should I Shake Up My Strategy Already?

Question

Newbie on the BiggerPockets team here and I had a quick question about the Denver market.

First: A little background on my Real Estate Investing Strategy:

I originally planned to get started with a buy and hold strategy, using the "How to Hack Your Housing and Live for Free" strategy Brandon suggests here:

http://www.biggerpockets.com/renewsblog/2013/11/02...

BUT, after looking around it seems that deals in Denver are few and far between on these types of properties, especially in the area that I want to live in.

Here's my question - should I change up my strategy and go for a fix and flip?

Inventory is low and houses are being sold rapidly (often above asking price).  I'm probably more of a DIY guy and would do most of the repairs myself on the evenings and weekends.  I think I'm going to have an extremely difficult time finding a property that can be turned into a buy and hold rental in the Denver metro area (where I want to live).

Pros of this strategy - I get experience in the requisite types of construction that will help me out when estimating repair costs in future investments AND I won't have to settle for a property that almost certainly won't meet the "2% rule" (or likely even a 1% rule).

Cone - This is no longer a passive investment.

What do you guys think?  Is there another creative way to make my first purchase of a primary residence an investment in the hot Denver Real Estate Market?

Bill S. · Answer

@Scott Trench personally I still vote for Brandon's life hack approach over flipping. There is lots of really good competition in the flipping world in Denver. You would be competing with seasoned pros how have access to cheap and skilled labor as well as knowledge and experience beyond your current life experiences. You should use you nights and weekends to get another job and earn money after purchasing a 4 unit building. You will likely make more than you would make being your own contractor on a flip. If you still want to do the fixup kind of work hire yourself out as a handyman for a landlord or another flipper and learn the ropes from the inside with no skin in the game.

If there are no 4 unit buildings in the area you want to live. Change the area you want to live. Don't go for the rough parts of town where multis are plentiful. Be patient and prepared and find a property that is in a better neighborhood. Get one of those and you will be much better off than doing a flip in my opinion. Sure your cash flow won't be great but when you are done living there it will be a great buy and hold investment. Denver will continue to grow and real estate appreciate and rents increase (maybe not at the torrid pace of the past couple of years but go up none the less). With leverage you will be far better off with Brandon's life hack than trying to do a flip.

If it means anything, I have done flips and made money (lost a little too-less than $2k) so while I am primarily buy and hold, I do have experience in both worlds. Mistakes in landlording usually are fairly small and recoverable from but mistakes in flipping can easily bury you. If you over pay for a buy and hold, you wait out your mistake while the tenants pay for it. If you over pay for a flip, you have a buy and hold that you are paying for.

Scott Trench · Answer

Bill Schrimpf

You make a really good point in the sense that a buy and hold is less likely to cripple me financially on a first time purchase than a fix and flip.  AND that I can wait out a mistake over a longer time period, with monthly cash outflows, instead of owing a huge mortgage with no cashflow.

I think I'm going to take your suggestion and wait for a 2-fourplex to come around.  It's frustrating to have so few options that meet other investor's criteria.  For future purchases I expect to go out of my market to find great cashflow properties.  With my primary residence, however, I need to live close to work.

The money I save from biking to work as opposed to driving is over $100 per month if I live 5 miles away ($0.55/mile*10 miles per day* >20 workdays/month), or even more when I factor in the fact that I can make do with a cheaper car and less insurance.  Because of this, I'm not willing to move farther than about 5 miles away from the office I work at.

Scott Trench · Answer

@Anson Young Thanks - I agree that it will be tough to find something affordable in the BP HQ.  If that is an absolute requirement, however, what do you think that the best way to invest is?

It may simply be that I should find a nice cheaper place to rent out, and purchase a rental out of market.

Anson Young · Answer

I'm with Bill - Jumping in the flip game with zero experience is a much more bleak proposition than finding a multi family you can afford and rent out the other unit (s).

Scott Trench · Answer

Thank you @Scott Nipp

I'll keep my eyes open - I like the open minded attitude.

Scott Nipp · Answer

I'm just as new to this as you are, and still looking for my first deal however...  I would say it doesn't have to be an all or nothing proposition.  If you think you will have better luck finding the flip opportunities there and that is something that you want to pursue, then by all means start hunting out those deals.  However, just keep your buy and hold strategy open as you might run into some good options for that in your search for flips.

I think it's great to be able to focus on a particular strategy, but at the same time I am keeping my eyes and options open for other opportunities that may come along.  Personally, my wife and I are really focused on wholesale and flipping but just today I came across a duplex less than 2 miles from our house that MIGHT be a great rental option.  I'm eager to get home in fact to do some more research on it.

Whatever you decide, just keep yours eyes open and don't think that you have to exclude buy and hold just because the market doesn't look great for it.  It may very well be that you don't end up doing much in the buy and hold arena, but I'm sure if you keep looking you'll be able to pickup some over the long haul.

Starting Out - Should I Shake Up My Strategy Already?

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