Moving from Fix and Flip to Buy and Hold

[Carl M.]

I'm a fix and flip investor who is used to buying homes and fixing them up both inside and out. Not only making them as pretty as they can be but also as safe as can be. I'm having some mental hurdles that I am having a hard time getting over in switching to this strategy. I'm used to re-wiring homes to ensure that they are safe. But I hear of so many investors who buy homes at a good price and immediately turn around and put a tenant in. Can anyone speak to this?

[Greg Scott]

Carl:

If you have been successful at fix & flip, you have more than half of what you need to be successful in buy & hold.  You just need the education on screening and managing tenants.

Here is a new mental model for you.   

Instead of fix & flip, think of it this way, fix, rent, & flip.   On my properties, I do just what you do.  I fix the place up and make everything safe and perfect.  If you offer it at market price, you get the pick of the best tenants because your property is the best one around at a competitive price.   Keep the tenant in place a few years and then sell the property before things start wearing out again.  That process should be no problem for you.

Here is what gets really cool.  When you fix & flip, the income is ordinary income, taxed quite high.  If you hold it for a few years, it is an investment.  The cash flow is largely tax-deferred (covered by depreciation) and when you sell, it is a capital gain or portfolio income, taxed differently.   If you like, you can even get into 1031 exchanges to defer taxes further.

So, I'm not exactly answering your question, but hoping to explain that you don't necessarily need to change your strategy, except to insert "rent it to a tenant for a couple years" in between "fix" and "flip".