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Updated about 2 years ago, 09/29/2022
Thoughts on changing Strategy?
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Both strategies work in any market, the key to being successful is by buying either type of deal correctly. Account for decreased ARVs, unforeseen renovation costs, etc. Pad your numbers during your underwriting and you'll typically come out on top.
You make your money when you buy correctly.
Why not both? If you've been flipping and having success, why try to fix something that isn't broken?
Keep flipping and reinvest your profits into rentals.
- Paul De Luca
I'm still flipping. Going to need more money to put down on rentals because a lot of deals don't cash flow anymore with rates being up. Flipping houses is a great way to build up capital for more rentals. Although it definitely is higher risk in this market.
@Anna Washburn, the real question is what are your goals? Even with interest rates rising deals can still be structured correctly and negotiated. If you're looking to build a portfolio in the long run, then you need to shift your focus to buy and hold. This is where having a pipeline of resourceful lenders comes into play. Just another part of understanding this business. Hope this helps!
Flipping will certainly have thinner margins in the current market. Buy and hold has its own problems right now, but with rents inflating as they have been, there's certainly some money to be made.
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Interest rates have nothing to do with flipping ? If anything it cuts into your profit on rentals,
Good luck
Quote from @Cory Lader:
Both strategies work in any market, the key to being successful is by buying either type of deal correctly. Account for decreased ARVs, unforeseen renovation costs, etc. Pad your numbers during your underwriting and you'll typically come out on top.
You make your money when you buy correctly.
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Flipping isn't the best idea in a declining market, only in markets and during times where property prices are improving. Buying and holding is always a good strategy, so long as acquired at a good price, made improvements, and you have the capital to hold.
Quote from @Bob Stevens:
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Interest rates have nothing to do with flipping ? If anything it cuts into your profit on rentals,
Good luck
True, but declining prices do! very much so.
Quote from @Cory Lader:
Both strategies work in any market, the key to being successful is by buying either type of deal correctly. Account for decreased ARVs, unforeseen renovation costs, etc. Pad your numbers during your underwriting and you'll typically come out on top.
You make your money when you buy correctly.
Buying correctly is just one way to limit risk. The others include timing the market, holding/managing correctly, rehabbing correctly, financing correctly, and selling (if you sell) correctly. You may improve value and make your money in many ways.
If you are flipping, you better understand real estate market cycles and time your acquisitions.
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Hey Anna,
The ideal situation is to ink deals that pencil both ways.
If you're getting through the reno and rates go down to increase the demand for your product from end-users then you can decide to sell. If rates continue their current trend you want to make sure that your rental calc has those refi rates padded so you're not going to be losing money each month.
Just make sure you're getting a deal on the buy and you'll have an easier time with disposition.
Quote from @Jon Q.:
Quote from @Bob Stevens:
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Interest rates have nothing to do with flipping ? If anything it cuts into your profit on rentals,
Good luck
True, but declining prices do! very much so.
Like I mentioned ,its all about your PP . You make your money when you buy.
Quote from @Bob Stevens:
Quote from @Jon Q.:
Quote from @Bob Stevens:
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Interest rates have nothing to do with flipping ? If anything it cuts into your profit on rentals,
Good luck
True, but declining prices do! very much so.
Like I mentioned ,its all about your PP . You make your money when you buy.
Make money when you buy, hold, and sell :-)
Quote from @James Dainard:
The ideal situation is to ink deals that pencil both ways.
If you're getting through the reno and rates go down to increase the demand for your product from end-users then you can decide to sell. If rates continue their current trend you want to make sure that your rental calc has those refi rates padded so you're not going to be losing money each month.
Just make sure you're getting a deal on the buy and you'll have an easier time with disposition.
This ^^^ I almost waffled on a deal a few weeks ago because I was worried we wouldn't' be able to flip it when the time came. However, I ran the numbers and came to the conclusion that it would still cashflow nicely, and we would have a lot of equity built into the deal.
#4 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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#4 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Investor
- Austin, TX
Every strategy still works, just have to adjust your numbers accordingly. I'm comping properties based off 2019 comps now
Quote from @James Dainard:
Quote from @Anna Washburn:
With the interest rates on the raise, would it be better to stop flipping and change to buy and hold strategy?
Hey Anna,
The ideal situation is to ink deals that pencil both ways.
If you're getting through the reno and rates go down to increase the demand for your product from end-users then you can decide to sell. If rates continue their current trend you want to make sure that your rental calc has those refi rates padded so you're not going to be losing money each month.
Just make sure you're getting a deal on the buy and you'll have an easier time with disposition.
Thank you! Makes sense. Having deals this way, I could rent the property for the next year or so, wait for these interest rates to drop and then flip the property.
Quote from @Paul De Luca:
Why not both? If you've been flipping and having success, why try to fix something that isn't broken?
Keep flipping and reinvest your profits into rentals.
Quote from @Cory Lader:
Both strategies work in any market, the key to being successful is by buying either type of deal correctly. Account for decreased ARVs, unforeseen renovation costs, etc. Pad your numbers during your underwriting and you'll typically come out on top.
You make your money when you buy correctly.
@Anna Washburn There is no rule to determine the ARV in this climate. It's purely based on comps but the comps have downward pressure. We're seeing $10-15k price reductions all day long then they sell. Luxury properties are not moving at all. We recently bought a distressed SFH (well under ask) with the ideal goal to buy/hold. Staying within our budget the strategy hasn't changed. I'd love to actually SELL something but now it's unpredictable. The interest rate hikes and subsequent price reductions could turn our 3 month rehab into little profit. Factor in holding costs, seller commissions, etc. and we could work for free. This is a business not a charity.
Like others mentioned and I really agree with @Jon Q. comments if you're not buying correctly don't buy. If you're not running numbers conservatively don't buy. If you don't have 3-6 months of reserves on day 1 don't rent.
Quote from @Jaron Walling:
@Anna Washburn There is no rule to determine the ARV in this climate. It's purely based on comps but the comps have downward pressure. We're seeing $10-15k price reductions all day long then they sell. Luxury properties are not moving at all. We recently bought a distressed SFH (well under ask) with the ideal goal to buy/hold. Staying within our budget the strategy hasn't changed. I'd love to actually SELL something but now it's unpredictable. The interest rate hikes and subsequent price reductions could turn our 3 month rehab into little profit. Factor in holding costs, seller commissions, etc. and we could work for free. This is a business not a charity.
Like others mentioned and I really agree with @Jon Q. comments if you're not buying correctly don't buy. If you're not running numbers conservatively don't buy. If you don't have 3-6 months of reserves on day 1 don't rent.
Thank you!!!
Quote from @Anna Washburn:
Quote from @Cory Lader:
Both strategies work in any market, the key to being successful is by buying either type of deal correctly. Account for decreased ARVs, unforeseen renovation costs, etc. Pad your numbers during your underwriting and you'll typically come out on top.
You make your money when you buy correctly.
I'm currently doing at least 10% (that's what we're seeing in my market) and a 10% minimum contingency in reno. This is also market specific. I'd look at your comps and see how much the prices have decreased and then annualize the decrease and account for it in your offer.