Thoughts on Pure Rental, or Fix/Flip ?

17 Replies

I am going to look at a 3/3 with a full un-finished basement today.

Price = $130,000

Median Neighborhood is $155k.

Rent around $1200

Options:

1. Pure rental property

2. Finish basement and flip

I just finished my primary home basement (1200 sq ft with Bedroom, Full Bath, Library, Theatre, and Rec Room for $10k, and could do the same again for this new house.

Thoughts ?

flip it.  Then 1031 that cash into a rental to keep.  Rinse, repeat.

Originally posted by @Greg Parker :

flip it.  Then 1031 that cash into a rental to keep.  Rinse, repeat.

Easy now.... 

Flips don't qualify for 1031..  

Take it nice and easy....

I would need more specific numbers and details to give my opinion.

If the basement doesn't increase the value why do it?

Purchase Price : $135,000
Down Payment : $27,000 (20%)

Mortgage = $108,000 @ 4.5%

Tax = $1874/year

No PMI

Monthly Payment + Tax = $788.05

Possible Rent = $1200 ( some houses in same neighborhood are $1300 )

Annual over mortgage = $4943 / 27000 = 18%

Originally posted by @Matt K. :

If the basement doesn't increase the value why do it?

I believe it would.

Buy for $135, add 10k for basement, sell for $155/$160.

Originally posted by @Alan Hicks :
Originally posted by @Matt K.:

If the basement doesn't increase the value why do it?

I believe it would.

Buy for $135, add 10k for basement, sell for $155/$160.

 How much with out the basement? Also is 160k top of that market for comps? There is such thing as over improved.....

Originally posted by @Alan Hicks :

Buy for $135, add 10k for basement, sell for $155/$160.

 Keep it or don't do it.

By the time you pay a realtor, carrying costs and other sales expenses, you've done a bunch of work for nothing.

What is your overall tax situation?  Flips will just increase ordinary income.  Sounds like it would be a decent rental, though.  Try it for a year. Sell after day 366 at cap gain rates if you don't like it.

I went and saw it on lunch. it was a rental property ( and renter was evicted ). 

Not trashed, but dirty and electricity/water had been off for at least a month.

Agents says they have multiple offers ( including full offer ). 

Originally posted by @Alan Hicks :

Purchase Price : $135,000
Down Payment : $27,000 (20%)

Mortgage = $108,000 @ 4.5%

Tax = $1874/year

No PMI

Monthly Payment + Tax = $788.05

Possible Rent = $1200 ( some houses in same neighborhood are $1300 )

Annual over mortgage = $4943 / 27000 = 18%

I am not sure you have enough of a spread there to make enough money on a flip to make it worth the flip VS holding as a rental. Start at the $155K and work backwards deduct your cost to purchase, rehab, closing costs, any Realtor fees (everyone thinks they will FSBO, but you have to plan for these as sometimes you need a Realtor to help). You also need to account for any Buyer who wants you to pay for their closing costs. Sometimes that is a standard ask for Buyers. Anyway, after deducting all of these expenses, what do you have left? If it is under $10K, then you have to evaluate whether the rental overage (cash flow) is more valuable at that point.

It sounds like the rental income will be worth more to you than any possible profit from the flip would.  PLUS, you get the added bonus of building equity in your property while you collect the cash flow from the rent.

One note in your numbers..... I don't see insurance.  You will want homeowners insurance, but it won't bump your monthly payment by much.  Also, you may want to consider a home warranty to account for repairs, but that is optional, and it sounds like you are handy, so maybe you would opt out.

Oh yeah....and don't forget about capital gains as an expense to consider for the flip.

Originally posted by @Cara Lonsdale :
Originally posted by @Alan Hicks:

Purchase Price : $135,000
Down Payment : $27,000 (20%)

Mortgage = $108,000 @ 4.5%

Tax = $1874/year

No PMI

Monthly Payment + Tax = $788.05

Possible Rent = $1200 ( some houses in same neighborhood are $1300 )

Annual over mortgage = $4943 / 27000 = 18%

I am not sure you have enough of a spread there to make enough money on a flip to make it worth the flip VS holding as a rental. Start at the $155K and work backwards deduct your cost to purchase, rehab, closing costs, any Realtor fees (everyone thinks they will FSBO, but you have to plan for these as sometimes you need a Realtor to help). You also need to account for any Buyer who wants you to pay for their closing costs. Sometimes that is a standard ask for Buyers. Anyway, after deducting all of these expenses, what do you have left? If it is under $10K, then you have to evaluate whether the rental overage (cash flow) is more valuable at that point.

It sounds like the rental income will be worth more to you than any possible profit from the flip would.  PLUS, you get the added bonus of building equity in your property while you collect the cash flow from the rent.

One note in your numbers..... I don't see insurance.  You will want homeowners insurance, but it won't bump your monthly payment by much.  Also, you may want to consider a home warranty to account for repairs, but that is optional, and it sounds like you are handy, so maybe you would opt out.

 Thanks for the insight. I agree with you. Buying, fixing, and flipping for only 10k might be difficult.

Buying, fixing, renting, and then selling may be a better option.

I would like to profit $400/month while reducing the mortgage balance ( by someone else ).

Either that.. or buy this su-weet Hunter 410 ( 41 foot ) sailboat I have been eyeing.

Originally posted by @Steve Vaughan :
Originally posted by @Alan Hicks:

Buy for $135, add 10k for basement, sell for $155/$160.

 Keep it or don't do it.

By the time you pay a realtor, carrying costs and other sales expenses, you've done a bunch of work for nothing.

What is your overall tax situation?  Flips will just increase ordinary income.  Sounds like it would be a decent rental, though.  Try it for a year. Sell after day 366 at cap gain rates if you don't like it.

My personal taxes ? 

So far this year - $35k in federal tax from my salary. 

That hurts just to type it :(

Originally posted by @Alan Hicks :

 Thanks for the insight. I agree with you. Buying, fixing, and flipping for only 10k might be difficult.

Buying, fixing, renting, and then selling may be a better option.

I would like to profit $400/month while reducing the mortgage balance ( by someone else ).

Either that.. or buy this su-weet Hunter 410 ( 41 foot ) sailboat I have been eyeing.

 Sure thing.  I know it's tempting...Lake Lanier is so beautiful.  

Originally posted by @Cara Lonsdale :
Originally posted by @Alan Hicks:

 Thanks for the insight. I agree with you. Buying, fixing, and flipping for only 10k might be difficult.

Buying, fixing, renting, and then selling may be a better option.

I would like to profit $400/month while reducing the mortgage balance ( by someone else ).

Either that.. or buy this su-weet Hunter 410 ( 41 foot ) sailboat I have been eyeing.

 Sure thing.  I know it's tempting...Lake Lanier is so beautiful.  

I agree. I love sailing on Lake Lanier.

I have too many hobbies ( flying, sailing, motorcycle racing ) - hahah

Originally posted by @Alan Hicks

I agree. I love sailing on Lake Lanier.

I have too many hobbies ( flying, sailing, motorcycle racing ) - hahah

 The first time I ever sailed (was actually at the helm) was on lake Lanier.  Just beautiful for sailing.  I laways wanted to go back.  I love to waterski, and I think it would be a good lake for water skiing.

You’re rental numbers seem a little off to me. Have you accounted for insurance, capital expenditures, repairs, and vacancy?

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