Renting or Flipping

6 Replies

When I purchase my first property, would it be more logical to flip the house or rent it out? Also, which is better in the long run, flipping or renting? Pros and Cons of each? 

Renting is easier (effort and knowledge-wise), less risky, builds net worth long term, provides more predictability, can be fairly passive, and is more scalable.

Flipping, can build your net worth more quickly but see above.

I do both.

IMO, flipping makes sense in certain markets where there's both a good supply of distressed properties and demand for nicer properties.  Profit from flipping depends on one's ability to find deals and move a large volume of properties.

Buy and hold renting is less exciting.  You should be able to determine a rate of return for your area based on comps and rental rates.  The downside of renting is managing tenant issues and slow cycle time between purchases (boredom).  One way to manage risk of really bad things (eviction, furnace, foundation, etc) with buy and hold is to have a larger number of properties.  That is, you're bound to have unexpected repairs and vacancies.  It is better to have several less expensive properties bringing in income while one is out of commission than to risk having a single expensive property out of commission.

One can certainly go broke with a bad rental purchase but I think flipping caries a greater risk.  During the housing crash, flippers were the ones stuck with inventory they couldn't sell and debts they couldn't pay.  Landlords in a reasonable market (not Detroit) can weather a storm like that of a few years as long as their original numbers made sense.

Hey Jeb, most of my business consists of flipping, however I do have a few rental properties. I've found that as a flipper, it makes sense to be open to both. I use my rental income as a source of monthly stable income, and then flipping as a bonus income. In doing so, I feel it helps to take the pressure off myself to trade and put myself into a risky deal simply because I need the income from flipping. 

From past experience, you'll also invariably end up with one or two houses that you'd made a mistake on while flipping and end up having to hold onto as a long term rental. 

So personally, if you are looking into this, I would be open to both. Personally, I would start off with flipping if you know what you're doing, build up capital and use it to buy rentals. 

Originally posted by @CK Hwang :

Hey Jeb, most of my business consists of flipping, however I do have a few rental properties. I've found that as a flipper, it makes sense to be open to both. I use my rental income as a source of monthly stable income, and then flipping as a bonus income. In doing so, I feel it helps to take the pressure off myself to trade and put myself into a risky deal simply because I need the income from flipping. 

From past experience, you'll also invariably end up with one or two houses that you'd made a mistake on while flipping and end up having to hold onto as a long term rental. 

So personally, if you are looking into this, I would be open to both. Personally, I would start off with flipping if you know what you're doing, build up capital and use it to buy rentals. 

 Thanks for the response, it for sure helped! 

Originally posted by @Raj Gandhi :

IMO, flipping makes sense in certain markets where there's both a good supply of distressed properties and demand for nicer properties.  Profit from flipping depends on one's ability to find deals and move a large volume of properties.

Buy and hold renting is less exciting.  You should be able to determine a rate of return for your area based on comps and rental rates.  The downside of renting is managing tenant issues and slow cycle time between purchases (boredom).  One way to manage risk of really bad things (eviction, furnace, foundation, etc) with buy and hold is to have a larger number of properties.  That is, you're bound to have unexpected repairs and vacancies.  It is better to have several less expensive properties bringing in income while one is out of commission than to risk having a single expensive property out of commission.

One can certainly go broke with a bad rental purchase but I think flipping caries a greater risk.  During the housing crash, flippers were the ones stuck with inventory they couldn't sell and debts they couldn't pay.  Landlords in a reasonable market (not Detroit) can weather a storm like that of a few years as long as their original numbers made sense.

 Thanks for the response! Its great info! 

Flipping VS Renting depends on the property and the market.   I started out as a flipper but realized that in my market being a landlord is more profitable.  I have flipped ~ half and kept ~ half the houses I have rehabbed.   

Flipping means you are in and out of the market all the time.  The short term risk is higher but so is the reward.  You have spastic cash flow as you spend a lot of money to buy and fix up a place but there can be a huge pay check at the end.

Renting means steady income and cash flow, which my lender likes to see.  Boring monthly cash flow and solid net worth lets me borrow money to buy my next project house.   It also means long term net worth goes up as real estate values rise and loans are amortized off.

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