Hi {{first_name}},

A sponsor I’m invested in sent me an email making the case for buy-and-hold over fix-and-flip. I’ve backed his firm for years. They’re very good at what they do.

They focus on long-term holds on mobile home parks. I like the strategy and it’s a part of my own Wealth Stack.

His argument for buy-and-hold came down to four things:

He’s gone full cycle on 16 mobile home parks with an average IRR north of 40%, and yet he told me the biggest return of his career was a decision he regrets making.

It was a 130-space mobile home park in North Carolina. He bought it off-market in 2014 with seller financing and almost nothing down. The park quadrupled in value and paid out cash every month. When rates fell and private equity started buying up parks, he sold for 13 times his money. A 170% annualized return. Years later, that park is worth double what he sold it for.

His lesson, “Great businesses should be held, not harvested.”

And I think he’s right. That strategy earns its place in a smart Wealth Stack. But there are more turns the story can take. What if the park’s value had collapsed instead of doubling? He’d likely say that selling at the top was the best decision of his career.

For one, holding and refinancing can protect your downside, while selling once you’ve built the value (flipping, in other words) lets you harvest that wealth and recycle it, theoretically into a diversified pool of projects that each get their own shot at performing. 

That got me inspired, so I built the Real Estate Strategy Simulator to show how each strategy optimizes for something different.

It runs every strategy through 1,000 simulated 25-year markets under identical conditions, so you can see which one tends to come out ahead, on what measure, and whether it fits your time horizon. You can plug in your own deal, from the operator’s edge to debt, exits and taxes.

This week I’m sharing:

— Walker Deibel
WSJ & USA Today Bestselling Author of Buy Then Build
Founder, Build Wealth

P.S. I’ve been buying businesses since 2006, and we just released our new Build Capital private equity fund. Acquire fractions of 12-18 professionally managed,  “old economy” companies, with one investment. 

Learn more here

Try the Real Estate Strategy Simulator 

Run your own deal through every strategy and see which one comes out ahead. It’s free and ready to use.

Run the Simulator 

Know someone weighing a real estate deal? Forward this to them.

One park, many futures

Run that park investment from above through 1,000 simulated 25-year markets instead of the single path it actually took, and the case for selling gets uncomfortable. At full market price, selling after the value is built and redeploying into a new deal beats buying and holding in just 11 percent of those markets. In the worst 10 percent of them, selling and redeploying leaves an investor at $0.99M on a $1.0M start. And holding’s bad case is $1.91M. So this sponsor’s sale worked. But most versions of it don’t.

It’s the first piece of evidence for something bigger. Holding, flipping, refinancing, and building each optimize for something different, and most investors never find out which thing they’re optimizing for until the market decides for them.

Certainty vs. velocity

Over a 25-year horizon, buy-and-hold turns $1.0M into a median of $2.85M after tax. Sell-and-recycle turns the same $1.0M into $1.86M. Holding wins that comparison by nearly $1M. 

The picture changes if you need your capital back. Holding takes nineteen years to return the original equity. Recycling takes five. Recycling optimizes for something holding never tries to do, which is getting your capital back out so you can use it for something else.

Here’s why the sponsor’s 40-plus percent average and a simple 15 percent can end up in the same place. Two years at 40 percent turns $1.0M into $1.96M. Now run the four frictions against it.

Meanwhile, that simple 15 percent compounds tax-deferred the whole time, with the sponsor’s first friction working for the holder. His sixteen parks at an average IRR north of 40 percent are real. The number that determines his wealth today is what he did with the money after each sale.

Liquidity: the refinance middle ground

Refinancing is the closest thing to having it both ways. You keep the property, like holding, and pull equity back out, like recycling. Over 25 years it lands at a median $2.87M after tax and hands back your original capital in just under sixteen years. 

Think of it as holding with an ATM attached. You keep the certainty and still get to your cash along the way, as long as rates and values cooperate when the loan comes due. At zero operator edge it beats buy-and-hold outright in 56 percent of simulated markets, which is why a long-term holder who still wants liquidity should look here first.

Margin: building from scratch

Building adds a fourth variable because it optimizes for margin, the gap between what an asset costs to produce and what it’s worth once it’s stabilized. Build-to-hold develops, refinances into permanent debt, and keeps the asset, landing at a median $2.78M. Here’s the catch. Fifty-eight percent of the time, the permanent loan that the finished asset’s income can support comes in below the construction loan it’s replacing, which could force a sale nobody planned for.

Today’s rates make this sharper. The new simulator tool uses a 6.4 percent mortgage rate, which matches this fall’s agency multifamily pricing, against a 5.5 percent cap rate. When cap rates sit below mortgage rates, a property’s income can’t support as big a loan. Lenders hit their income limit before they reach the usual 65 percent loan-to-value cap. 

The tool sizes loans to a conservative 1.35x debt coverage ratio, which puts a hold’s real leverage near 54 percent. Typical agency lending at 1.25x lands nearer 59 percent. Either way, that income limit caps how much cash a refinance can pull out. It’s also why the permanent loan replacing a construction loan comes up short more often right now.

Build-to-sell takes the same construction risk and cashes out at completion instead. At the simulator’s default assumptions, a development spread of one and a half percentage points between yield on cost and exit cap rate, combined with a typical cost overrun, produces a median loss: $0.55M back on $1.0M in. Widen that spread to 2.25 points and tighten the overrun to 5 percent, and the same strategy’s median rises to $4.01M. 

One current example is The Rollick, a BuildRise III project run by developer AHM Group. It’s projected to return 2x in 36 months, roughly a 26 percent IRR, which assumes the spread and the overrun both land in the good half of the range above. Projections aren’t guaranteed. (Note: The Rollick is a Build Wealth offering, and I’m personally invested in it.)

So which one should you use?

Holding answers “How do I protect what I’ve built?” Recycling answers “How do I get my capital back faster?” Refinancing answers “How do I protect it and still reach my cash?” Building answers “How do I create value from scratch?” None of them answers “Which one should I use?” because that question has a second variable hiding inside it.

These calculations assume an operator paying full market price. The sponsor’s own park was bought off-market, with seller financing and almost nothing down, exactly the kind of discount that pays for all four frictions at once. 

So what happens when the operator does have a buying edge? Everything changes.

Figures in this issue are hypothetical simulations using the simulator’s default settings.

Edge flips the ranking

Give the operator a buying discount and the ranking starts to move. Recycling needs about a 7 percent buying discount just to beat holding in half of simulated markets. Build-to-sell needs about 12 percent. 

Refinancing and build-to-hold need none, though build-to-hold still carries that 58 percent potential forced-sale risk no matter what edge looks like. At a 20 percent discount, the ranking flips entirely. Recycling reaches a median $11.00M, build-to-sell $9.40M, build-to-hold $8.07M, refinancing $6.01M, and holding falls to last at $4.33M.

The simulator’s adaptive rule is built to act on exactly that logic. It holds and refinances when edge is low, so at zero edge it behaves much like the refinancing strategy from the last section, refinancing about eleven times over 25 years in testing. As edge rises, it shifts toward selling and recycling, tracking whichever strategy is actually winning without anyone having to choose in advance. 

At zero edge it still beats buy-and-hold in 60 percent of simulated markets, and at 20 percent edge it ties recycling for the overall lead, both landing at a median $11.00M. A 50/50 blend of buy-and-hold and the adaptive rule keeps most of holding’s downside protection while picking up real upside, a reasonable blend to test for anyone who doesn’t want to bet the whole portfolio on edge actually showing up.

How to measure it

None of this matters if the edge isn’t real. Most sponsors claim some edge, usually without showing their work. Measure it instead.

Sixteen deals averaging a 5 percent discount, with a 10-point standard deviation across them, lands at a usable edge of about 2.5 percent. That’s well short of the 7 percent recycling needs to beat holding, and it’s a number most sponsors have never been asked to produce.

Run it yourself

Until a sponsor produces it, assume zero edge, which is the simulator’s default. That’s the setting every strategy above was tested against, and it’s the one that makes holding the strategy to beat. 

Run your own version of this before the next pitch lands in your inbox. In the simulator, set the operator edge to whatever a sponsor’s deal-level numbers support once you’ve run the math above, run the simulation and see where their strategy lands against buy-and-hold. Then run the edge sweep to see how much edge each strategy needs. If the sponsor won’t give you deal-level purchase prices, that’s an answer too.

Test your sponsor’s strategy before you invest.

Run any deal through five real estate strategies in the same simulated markets, and see which one tends to come out ahead.

Try the simulator for free.

The one big thing to take from this issue: every strategy optimizes for something different. 

Certainty, velocity, liquidity or margin.

Know all four like the fox. Then pick the one that fits your horizon, commit to it like the hedgehog, and build your Wealth Stack around it.

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This is not financial advice. Illustrative output of a reasoned thought experiment. Not a backtest, guarantee, or prospectus. Actual results vary based on market conditions, fund selection, timing, fees, taxes, and factors not modeled. Private credit, CRE, and leveraged strategies involve significant risk including loss of principal. Consult a qualified financial advisor.