Would you rather do rental properties or Flipping houses?

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Would you rather do rental properties or Flipping houses?

Michael Buabeng
Member since 2020 · 10 posts · 1 vote

Hello Everyone. My name is Michael and I am 22years old. I am a little confuse about whether I should start flipping houses or buy a rental properties and rent them out. I have $45K saved up and I am thinking about getting into real estate but I’m not sure which is best to start off with the capital I have now. Please I need your opinion. Thank you!

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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
5y

@Michael Buabeng - the single best first move is usually a house hack. Buy a dupex or 4 plex with a low down owner occupied loan and move into one of the units. You can buy another one in a year, again with low down.

It is a very easy way to get started, lower your own cost of living, free up cash flow, learn the process of buying, landlording and working with contractors. Low risk and easy to sell if you find it's not for you.

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  • Joshua Bullis
    Investor · Chesterfield, SC · Member since 2016 · 38 posts · 8 votes
    5y

    Really depends on a couple of things. The first is your goals. The second is the market. What makes more sense to you and what types of things can you realistically do in that market you want to work in. Some markets make more sense to flip and others make more sense to buy and hold and usually you can also do the brrr thing as well which usually worked out best. So define what you ambitions and goals are and they will help you with that decision.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    In addition to what Joshua said, it also depends on how much time you have.  Flips are much more riskier and time consuming, but once you are done...you are done.  Long term rentals get lower returns in the short term, but also require less work (except at turnover).

    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    5y

    @Michael Buabeng - the single best first move is usually a house hack. Buy a dupex or 4 plex with a low down owner occupied loan and move into one of the units. You can buy another one in a year, again with low down.

    It is a very easy way to get started, lower your own cost of living, free up cash flow, learn the process of buying, landlording and working with contractors. Low risk and easy to sell if you find it's not for you.

    6Reply
  • Aaron Macken
    Member since 2020 · 57 posts · 14 votes
    5y

    The general idea you'll hear is "getting out of the rat race". Or using your money to purchase something that makes you more money. By purchasing rental properties the right way, you'll be able to generate multiple streams of income. Gather enough and you'll be able to quit your job, or at least have the option of doing so! Flipping seems great too, but in my opinion, it seems more like a job. As soon as you stop doing it, you stop making money.

    Marcus hit the nail on the head as well. I'm looking to get into my first owner occupied rental property pretty soon here. It seems like a great way to get your feet wet with everything. 

    0Reply
  • Duane Stephen
    New to Real Estate · Gaston, NC · Member since 2020 · 1 post · 0 votes
    5y

    Hey Michael,

    You may want to check this out for some help 

    https://www.biggerpockets.com/...

    0Reply
  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
    5y

    @Michael Buabeng

    Michael,

    I think there has been some good advice here. I know from my stand point and what I did was bought a duplex and lived in half of it for about two years. During that time saved a ton of money on rent so I was able to buy another property (personal) and used the duplex as a rental for another two and a half years. With the appreciation from the duplex last year I did a1031 exchange and bought a 8-unit in Phoenix. Now obviously I was in California so the properties appreciate a little faster.

    That being said I would ideally go for 4-units live in one of the units,make sure the numbers work and pay rent as if you were a tenant. Even tho when I first moved into the duplex I only owed $50 for rent I still paid rent as if I was a tenant to help build a maintenance fund. Once you stabilize that property then look for your next deal.

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Joshua Bullis thank you for your response. I honestly feel like flipping will be my style since I don’t wanna be dealing with tenants and I believe given your properties to a property management really don’t make a lot of difference since you will end up paying every expenses that they will spend on the house and still have to pay management their commissions.

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Marcus Auerbach

    That would have been a best option but I think I messed it up. I recently just purchased my first home(single family house) a few months ago with a 2.5% rate. I am surrendered. I feel like I am making a lot of mistakes already. 🤦🏿‍♂️

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Duane Stephen thank you very much. I am definitely going to watch the video.

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    I am currently living around fort hood area in Texas. The major reason why I though about doing flipping was because fort hood is the biggest Army base in the US. There are soldiers coming in often which has lead to higher demand of houses been bought here. I have a few questions battling my mind now;

    1. How will I know a good lender to work with?

    2. What is a reasonable down payment I should be willing to put down? I have people telling me I should be looking at 10-20%. ( I have 740 credit score with a 100% payment history.

    3. Is it realistically a good idea to do flipping with the capital I have ?

    0Reply
  • Jon Schwartz
    Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
    5y
    Originally posted by @Michael Buabeng:

    @Marcus Auerbach

    That would have been a best option but I think I messed it up. I recently just purchased my first home(single family house) a few months ago with a 2.5% rate. I am surrendered. I feel like I am making a lot of mistakes already. 🤦🏿‍♂️

    Michael,

    Don't fear! It's better to make all the mistakes at the beginning when you're playing with less money and learning. Losing $10K and learning a really valuable lesson now is much better than losing $100K and learning that same lesson a few years from now!

    To your original question: I'd start with flipping. Sounds like you'll like it more, and it's a faster way to generate capital. Flip a home, then plow the profits into another flip, etc etc etc.

    Eventually, though, you'll want to start holding onto some of your flips and renting them out to generate passive cashflow and a portfolio. The cashflow and equity wouldn't just produce income; they'll produce wealth.

    As far as your lending questions go, find and talk to hard-money lenders in Fort Hood. Tell them how much money you have, what you're trying to do, and how you can work with them to secure financing on a flip.

    Good luck!

    Best,

    Jon 

    0Reply
  • Dave SpoonerPro Member
    Rental Property Investor · Cincinnati, OH · Member since 2020 · 869 posts · 823 votes
    5y

    @Michael Buabeng

    I personally prefer to buy and hold. The BRRRR method is an attempt at the best of both worlds. You get the upside of rehabbing and the stability of the rental. You also get to take advantage of long term appreciation, which you can play a direct role in accelerating by focusing on one community.
    I also target properties where I believe I can get high quality tenants. This minimizes the work load of management. I'm also a big believer in using software to automated management tasks.
    [email protected]
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  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Jon Schwartz I really appreciate your words of encouragement. Thank you 🙏🏿

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Dave Spooner I think the BRRRR method could be my long term goal. I am not sure whether doing flipping first with the mindset of getting money to buy more property and hold is a good idea🤔

    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    5y
    Originally posted by @Michael Buabeng:

    @Marcus Auerbach

    That would have been a best option but I think I messed it up. I recently just purchased my first home(single family house) a few months ago with a 2.5% rate. I am surrendered. I feel like I am making a lot of mistakes already. 🤦🏿‍♂️

    With 2.5% interest rate or 2.5% down? If it was an owner occupied loan you probably need to stay there for 12 months, so find out and then how many months left?

    You did not make a mistake, you made a move and bought your first house, that is a success either way! You are already ahead of the guy who is still renting. Maybe you could have made a different move first, but you have lot's of time and many more moves to make.

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Marcus Auerbach 2.5% interest rate. I don’t know if it was a good idea or not but my plan for purchasing my first home was to eventually move out after 3 years then rent it out so during my 3 years I will be flipping houses instead and save those profit to be able to buy a little bit more rental property. I know some of you guys have been doing this for years and probably have seen it all that’s why I need help.

    0Reply
  • Martin LindsayPro Member
    Investor · Charlotte, NC · Member since 2018 · 77 posts · 41 votes
    5y

    Buying your first house at that low of an interest rate is awesome and is by no means a mistake. I bought my primary residence in 2017 and didn't have real estate investing on my radar whatsoever but my house has fortunately gained equity and I opened a HELOC on it to access it, meaning it still turned out to be a great investment.

    I've gone through what you're debating and have lived and learned. I think the best is to address what your goals are and where you're at currently. 

    My real life example lesson: I quit my job to invest in real estate full time and started with a chunk of money saved up like you. I bought 4 rentals and 1 flip in my first year. My mistake was that I bought too many rentals relative to how much money I had. What I should have done was do 5 flips my first year, hopefully profit off of them all and grow the amount of working capital I have to reinvest into more flips and then rentals. 

    Hope this helps!

    0Reply
  • Michael Buabeng
    OP
    Member since 2020 · 10 posts · 1 vote
    5y

    @Martin Lindsay thank you so much for your response. I really do appreciate you sharing your story because not everyone will share their mistakes for others to learn from. Things always look scary in the beginning but I have really learn a lot from each and everyone responds. I wish I knew about BP longtime ago.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Marcus Auerbach:

    @Michael Buabeng - the single best first move is usually a house hack. Buy a dupex or 4 plex with a low down owner occupied loan and move into one of the units. You can buy another one in a year, again with low down.

    It is a very easy way to get started, lower your own cost of living, free up cash flow, learn the process of buying, landlording and working with contractors. Low risk and easy to sell if you find it's not for you.

    YUP this is what most that are starting out who are not going into real estate as a profession should do.. I know even though I was an agent at 18 buying my owner occ home FIRST and foremost set me up for the rest of my life basically.. now granted I was blessed with those being in the SF Bay Area and we rode the tech wave for decades..

    But there are just to many advantages to doing this for the first move.. 

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    1Reply
  • Dutch Langley
    Flipper/Rehabber · Matthews, NC · Member since 2019 · 198 posts · 239 votes
    5y

    We love flipping!  We focus on a bit higher end flips...ARVs of 380-480.  We can do an entire interior gut and renovation in about 3 months and they all have sold pretty quickly.  First...we love doing it....I love walking into a shambles of a home and "seeing" it complete...project manage the hell out of it...manage the accounting...create the dream for the next buyer and move on!  I understand all the benefits of rental property...just don't love that.  I can make money doing a lot of stuff.  Prefer to do what I love while I am doing it.  

    0Reply
  • Ruth Lyons
    Investor · Colorado Springs · Member since 2016 · 232 posts · 150 votes
    5y

    Love reading everyone's responses; thanks all for sharing. As Joshua Bullis says it depends on your investing goals and the specific opportunities available in your local market. And markets are constantly changing so sometimes flipping makes sense and sometimes you can't find a deal to flip where the numbers will work. It also depends on your strengths, connections, capabilities and access to capital. I started with rentals and when my portfolio was full, moved to flipping. 

    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    5y
    Originally posted by @Michael Buabeng:

    @Marcus Auerbach 2.5% interest rate. I don’t know if it was a good idea or not but my plan for purchasing my first home was to eventually move out after 3 years then rent it out so during my 3 years I will be flipping houses instead and save those profit to be able to buy a little bit more rental property. I know some of you guys have been doing this for years and probably have seen it all that’s why I need help.

     Hi Michael, always try to sail with the wind and chnage your strategy when the wind changes. At the moment we have no inventory and low interest rates and very strong appreciation. So how can you take what the market provides you to your benefit?

    The issue with the inventory is that first time home buyers who don't understand the cost of a rehab will overpay for properties that need work and fix it themselves over time, so finding something that needs work and is priced adequatly for a flip is difficult. Selling is easy.

    Finding a stratgey between low interest rates and strong appreciation is another option. Milwaukee has seen 13.4% increase in median sold prices for single family homes August 2020 vs August of last year. The number will likely come down and we will finish the year closer to 8% I guess, still almost as much as you would make on a flip (and then pay incoem tax on the flip).

    0Reply
  • Joshua Bullis
    Investor · Chesterfield, SC · Member since 2016 · 38 posts · 8 votes
    5y

    @Michael Buabeng, just make sure you have a plan and run your numbers. And always make sure you have a backup. It's important to find your style and stick to it even when things get hard.

    0Reply
  • Brock Mogensen
    Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
    5y

    I have always preferred buy and hold because of monthly cashflow.  Flipping can be great for quick cash but the tax hits are brutal.  Multifamily in good locations is a great path to go down.

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