Buy & Hold vs. Fix & Flip - What are the numbers telling me?

[Matt Hardy]

I recently watched the @Brandon Turner and @David Greene webinar on the 90-day call to action for real estate investing and have since begun to analyze as many deals as I can in my spare time.  My question came up as a result of using the Rental Property calculator and looking at the future cash flow/return model...

Most listings in my market (San Diego) don't come close to passing the 1% rule... however, I still run the numbers to start looking at how close I can get to positive cash flow and what has a bigger impact on the numbers (purchase price, reno costs, etc.).  I noticed that in most cases my cash flow was negative, or barely breaking even (the median home price is $600k+ here, most people don't rent for $6,000/mo if you follow the 1% rule).  However, I also saw that in some cases my Year 1 or Year 2 "Annualized Total Return" was huge - from 65% to 150% in some cases... I'm still honing in on renovation costs, etc. to make sure this is accurate... but in these scenarios would it make more sense to do a "flip" and exit immediately rather than buy & hold? Am I missing something?

Thanks,

--

Matt

[Lee Ripma]

In coastal CA most none of those rules apply. A rental bought now won't cash flow but the IRR long term can be very high when appreciation is taken into account. There are ways to get cash flow but you won't be able to just buy something off the MLS and have it right away, like many cash-flow midwest markets. You can flip or hold for long term appreciation but if you buy at market rates off the MLS you are not going to cash flow on a SFH. I'm going to start helping a friend in CA do flips but I otherwise don't invest in CA. There are many markets in CA that are like the midwest, checkout twentynine Palms!