Buy It Rent It vs. Fix It Flip It

Lesson
Materials

Building wealth is a key benefit to investing in multifamily properties.

-Fix it Flip is not real estate investing. 

Bryan Chavis

Real estate investing is:

  • Creating passive income for yourself
  • Being able to benefit from tax deferrals, cash flows, the periodic pay down of debt and the ability to take the project from point A to point B
  • Use cash to reinvest in other properties. 

Fix it Flip it can offer a quick cash multiple but it comes with a lot of risks and more competition. 

More Competition = Less Deals

IRR: Measures the efficiency of returns

What Is Internal Rate of Return (IRR)? (Investopedia.com)

The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula as NPV does.

KEY TAKEAWAYS

  • IRR is the annual rate of growth an investment is expected to generate.
  • IRR is calculated using the same concept as NPV, except it sets the NPV equal to zero.
  • IRR is ideal for analyzing capital budgeting projects to understand and compare potential rates of annual return over time.

Example:  Promising $20,000 return at the end of a twenty-year period and you have 5 different models that return that $20,000 at a different period of time.  That is where IRR helps determine which model is more advantageous. 

Multifamily:

  • Multifaceted – You have more units which decreases the volatility when there is a vacancy.
  • Offers a multitude of ways to grow wealth and put your dollar to work.

Fix It, Flip It:

  • Limited to one strategy:  Buy low, make improvements and benefit from the cash multiples.  
  • Does not bring in passive income.

Other Key Points:

Having a strategy in investing is a key component to success in multifamily properties.  

3 Reasons to Invest in Multifamily Real Estate (Investopedia.com)

  1. More Expensive, but a Lot Easier to Finance
  2. Growing a Portfolio Takes Less Time
  3. You’re in a Position in which Property Management Makes Financial Sense
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