When does wholesaling real estate trump buy and hold investing?
Dangerous Ideas
Some very dangerous ideas are being floated in online real estate investment forums today. They may not be new ideas, but they appear to be new ‘eureka’ moments to some having them.
Chief among them are:
Buying negative cash flow properties
Betting on appreciation
A five minute dive into online real estate conversations will quickly yield comments like “I don’t understand why anyone would ever sell real estate, because it always goes up.” Or “what’s wrong with buying negative cash flow properties, that’s all that is available in my market.” To be clear; real estate has proven to have almost predictably gone up in value for decades. And there are under-performing and non-performing properties which can be improved on, and managed better, to yield strong cash flows and returns. But in the context being used, it appears that new investors are already completely oblivious to the crash that happened just a few years ago. Blind to the billions of dollars in foreclosure homes that sit next door, and are depressing entire communities across the US.
Real estate appears to invariably go up over time. But there can be deep and long troughs in between growth spurts. Very few are equipped to really weather these soft spots until markets rebound, and bounce upwards again. Then there are the silent woes of being a landlord. This includes depreciation, property maintenance and repairs, and problem tenants. Put simply; appreciation can provide great bumps to wealth building. But ignoring the costs and risks of buy and hold real estate investing can be financially disastrous. This is even more risky for those only invested in slow returning income properties with thin spreads. Those in a negative equity situation can be sitting on a ticking financial bomb, that won’t take much to trigger. When this happens pent up captive equity and paper losses and gains won’t be much good.
Smart Wholesaling
The reason that sophisticated investors choose real estate wholesaling is that is provides real cash returns, with the least amount of risk. Wholesalers are in and out of the market, and get paid fast. Their financial futures, incomes, and lifestyles are not tied to the performance of any specific property, or even neighborhood. Wholesaling works all the time, in any market cycle. Those lump sum cash rewards can be reinvested in more wholesale deals, or in scaling a wholesaling business, while transactional funding can be used to finance acquisitions. Other profits can be used to pay cash for personal items, and what can be afforded to invest in more risky investments can be put into buy and hold rentals, and other more diverse assets.
Authored by Best Transaction Funding BestTransactionFunding.com is the leading source of transactional funding and hard money loans for real estate wholesalers in the US, where 100% financing, and saying “Yes” is what we love doing all day long.
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