Should I flip or rent out my first property?

Question

I am struggling with what to do with my first property. My plan going into it was to renovate and rent it out. BUT there's room for a good amount of profit ($25k) if I flip it. I could really use the start up capital but I also want to build a rental portfolio. My overall goal is to replace my income with passive income from rentals. I would need approximately 50 rentals to replace my W-2 income. That seems like a steep feat and requires more capital to scale my business at a faster rate. So do I give up a few rental opportunities in the beginning to raise some funds? Has anyone else debated this? What did you do, and did you regret it? Thanks in advance!

Eddie Werner · Answer

Buy and hold as a rental.  If this would be your first flip odds are against you it will be over budget and a longer time frame to complete.  Unless you partner with someone that has flipped before to reduce your risk I would just keep it as a rental.  Long term perpetual monthly income over a one time pay day.

Cassandra Sifford · Answer

I too struggled with the thought of flip or hold.  I've decided when I find that property I'll hold it.  I want to have financial freedom and feel that holding it as a rental will get me to my ultimate goal.  Are you interested in multifamily units or SF?  They seem to give the best bang for the buck (at least for me) so you may want to invest in those to get the cash flowing so you can possibly do a flip after holding onto the property.  Well wishes :)

Jeff Copeland · Answer

You won't build a rental portfolio by flipping houses. But it depends largely on your financial position and tax bracket.

If you're broke and you need the $25k to eat, that is what it is. Flip the house and buy and hold when you can later on.

On the other hand, if you're financially secure and are in a higher tax bracket, then it can make a lot of sense to hold the property as a rental - at least for one year so you pay long term capital gains when you sell, or longer term if that fits your goals/needs.