Hoping for some opinions/advice: My husband and I bought our first investment property with the intent to flip it. We knew off the bat that we wouldn't make a ton of money off of it, but we wanted to use it as a learning experience, to get our feet wet. As for the numbers: We paid cash, $89,000. We're on track to spend about $13,000 fixing it up (most of the work has been done ourselves). We should be able to sell it for $125-135K.
As I said, our plan was to flip it, BUT after listening to a ton of BP podcasts, I've been getting really excited about the idea of rental properties, as an investment in our future. So, now we're wondering if we would be better off using this property as a rental instead. We would likely be able to get $1200/month for it. We did pay cash, though, and I don't want that money tied up, so I'd need to get a loan on it (I've read a bit about that, and I know it's possible, but I'm not sure of the logistics.).
Any advice is greatly welcome!!!
Kelly Bellini, congrats on taking down your first deal! I am biased here but I hate flipping. Here is the main reason why... when you sell the property that's the last time you made money on that property. The reason I invest in real estate is because I want to get paid cash flows in perpetuity from the work I do on the front end to source deals.
Although I am not a single family investment fan, this deal will act as your training wheels to get experience on the management portion of the business if you hold onto it. This will provide great value if you get bit by the bug and decide to build an empire! Hope this helps and let me know if you have any follow up questions.
Also, if I can make a suggestion, make sure to put up a profile pic on your bigger pockets profile. It sounds stupid but it gives you credibility.
Do the math, but for $1200/mo, it seems like it would cash flow decently.
You will need to wait 6 months to get a loan on the ARV ($120K), but you'll get much of your initial investment back.
Try it for a year or two. If it doesn't work out, you can always sell - and after 2 years you don't have to worry as much about the taxes.
@Mike McCarthy and @Matthew Drouin - Thank you so much for taking the time to give me some opinions. First, I put up a picture (thanks, Matthew). Second, I was pretty much leaning in the direction of renting, so it's good to hear others confirm that that may be the way to go. Since we're already 2.5 months in on renovating (again, doing it ourselves), and the holidays are around the corner, waiting a full 6 months to get the loan is really no big deal. And I suppose we can get renters in ASAP. Do either of you know much about getting a loan after paying cash on a property? If I wait 6 months, will I be able to get 80% of the ARV?
@Kelly Bellini usually if you go with an off balance sheet loan product through Fannie Mae Freddie Mac, they will have seasoning requirements like that (I think it's 6 months, but not sure). However, if you go with an on balance sheet loan (portfolio loan) through a community or local bank you should be able to get a product with no seasoning requirements. One caveat... most portfolio loans may be a slightly higher interest rate than Fannie Freddie Product, have a fixed interest only for a portion of the loan term (5-10 years), and may have a balloon payment during the term of the loan. You may ask, then why the hell would I go with a portfolio loan? Because in addition to the less stringent seasoning requirements, a lot of these local banks will allow you to put the loan under an LLC name, and you give an unlimited personal guarantee (also known as a contingent liability). Why is this important? The loan will not show up on your personal credit report which affects your debt to income ratio and credit score.
thought process is the same as @Mike McCarthy . The cash flow is decent but its not that 1 percent like they talk about podcasts its just under that. But its decent for sure! If it was me i would keep and rent it. See where the market goes in the upcoming couple of year.
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