Which is better - Hard Money Flips, Out of State, or Buy and Hold

[Sam Choi]

Hello BPers,

My wife and I recently purchased our primary residence in Silver Lake and did a pretty extensive remodel, however, I am now in the market for an investment property, as a SF residence does not provide any cash flow!

I have been reading books, the BP forums, as well as listening to different podcasts, however I have been having a hard time deciding what I should do for my first deal. I've been in contact with several agents and wholesalers from the Los Angeles area as well as the Dallas / Fort Worth area to look at the various opportunities. 

My wife and I have about 150k that we can invest as well as additional funds for any rehabs. Here are the different strategies I've been leaning towards.

1. Hard Money Flips - I've been talking to one of my dad's realtors and his strategy is pretty solid. He essentially finds rehab homes, mainly foreclosure properties, connects you with his hard money lender (20% down, 2 points, 10% interest), connects you with one of his contractors, and then will list the property for sale. He provides a rehab estimate as well as ARV comps. From the listings I've seen, typical purchase prices are right around 500k, with an average profit of about 50k after all rehab, holding costs and agent commissions. With the hard money loan, it would be closer to 25k.

2. Out of State - I've also been in contact with several wholesalers in the DFW area. One of my friends has been quite successful there, starting only about a year ago. He has purchased 2 single families as well as a multi and has done quite well with them. I would either flip or buy and hold with his connections, depending on the property. However, because the DFW market is on fire right now, so it has been quite difficult finding any properties that meet my criteria. I have been on the forums quite a bit lately and have read about many other cities with higher cash flow and flips with better potential.

3. Buy and Hold Multifamily - The last strategy I've been considering is to buy an hold a multifamily, preferably a 4-plex, near the Los Angeles area. However after analyzing many 4units, they have mostly been negative cash flow even if I purchase rehab properties. With this, I have come across a few issues as well. First of all, I only have limited capital. I do not really want to sink all of my capital into buying a multi family, as it would take quite a while to save up to do another deal. Secondly, the rent control issue in Los Angeles. I have been looking mostly at post 1978 properties due to this as well as unincorporated matters, but the prices definitely reflect that they are non rent controlled. I have also been looking into non rent controlled areas such as Inglewood, San Bernardino, and Long Beach, however, I don't the area as well.

I have been researching and thinking about the following for quite some time, however due to the wealth of knowledge on the forums, I wanted to ask to see everyone's thoughts. I would love to hear any feedback on the following strategies or if there is anything that I might be missing. Thank you for reading through the long post, and would greatly appreciate any advice!

[Sam Choi]

@Brian C. That is a great multi that you were able to purchase. I will definitely have to start researching that area. Especially if there are rehab multis, I feel like a cash out refi will be very possible. Although you may not get 100% of your invested funds back, that still okay with me. As long as I have enough to do another deal. Also, what do you mean by the sellers paying 0 commission? Is it that you paid the listing agent's commission at the time of purchase? 

And the multi being an "as-is" property, I'm guessing there was some rehab that had to be done. Did you ever get an appraisal afterwards? I'm just curious as to the forced appreciation aspect.

@Curtis Harvey I am in the same situation as you. The only property I currently own is my primary residence, however I don't have any offers on properties yet, as I'm still deciding on how to approach my first deal.

@Account Closed Thank you for the insight. I have not yet looked into any cities in Florida, but I do realize there are many areas that have a lot of potential. I am realizing that the hard money flips around my area probably isn't worth it, based on the feedback I've been receiving here. So I definitely appreciate that. And for the property you put under contact, I would definitely consider that a grand slam compared to the deals that I've been looking at. Good luck to you as well!