Should I buy a home to rent out or to flip?

1 Reply

My husband and I bought and renovated a condo together. We lived it it for three years, but recently decided to rent it out. We are hoping to keep it and make it a long term investment while we have our own home for our family. Recently we found a starter home for 240k in a neighborhood where the comps are 350k. The home needs about 40k in renovations, but has a ton of potential. It's in a great neighborhood, top notch schools etc, but it is not the ideal home we want to live in forever. How do we decide if we should flip it, rent it, or live in it? Any tips would be greatly appreciated!

I don't know what market you are in, but I know in my market the houses outside of the "first time buyer" price range are not moving very fast. 

I would be careful if you are not experienced in flipping because holding costs on a property of that price point could be pretty significant. Also, I would get a flipper or a realtor that regularly that works with flippers to help you with your comps and ARV. They may have a good insight into the market.

If the house would work for you for a while but may not be your "forever home" you may consider doing a live in flip. As long as you make it your primary residence you can will get a few solid advantages over a regular flip.

- You may be able to qualify for a loan at a much lower interest rate than a loan to flip. 

- If you live in the house for more than 2 years, you may be able to sell without paying capital gains taxes. Income from flipping counts as a form of income, so it generally will be taxed as such. 

I can't give you a solid answer on which would be best for your situation, but just a few things to keep in mind.