Purchased 1st property, Flip or rent? Need help!

6 Replies

Hi BP! I hope ya'll are looking forward to a great Labor Day weekend! Here is the scenario and numbers for a property I've purchased at auction and I'm struggling to figure out which is the best play/course of action from here, and would appreciate ya'lls experience/judgement/advice! Details:

  • Purchased home for $183,500 in cash (auction property so had to be cash)
  • With repairs/rehab estimating $18,500
  • ARV value $230-235,000
  • If sold, would net around $22,250.

If held as rental, will cash out refinance and get $172,500 back, based on 75% of $230,000 appraisal. 4.2% interest rate for 20 yr loan, equals $115/month cash flow with almost all of my money back and 25% equity in the property.

But then I think to myself, if I sell the property for $300,000 in 20 years, we'd get a check for $300,000 (roughly), but we had about $200,000 into the property. So we gained $100K over 20 years....that just doesn't sound that great while cash flowing around $115/month.

Am I missing something? Which route would ya'll lean towards? I appreciate the suggestions and letting me know if I'm missing something.


 

Sorry about that but I was saying that your two scenarios you mentioned for that property are either ordinary income tax versus passive income tax which is lower and the way I would recommend not knowing your goals. It depends on your needs. If it goes down in value, it would still rent out, usually. If we have a recession or a depression, there is no guarantee about values going down. If the demand for rentals in that area, you'll still be in good shape because of its rental income and the likelihood appreciation over 10,15 ,or 30 years. You can normally raise the rent about 3% every year.

Another big consideration in your decision is the historical history of the rentals in that area or its future potential versus the selling demand in that area so your net income could go up.  Your decision could effect your budget of repairs/rehab.  Either way, just do what is normal in that area or go slightly higher to improve its value no matter which way you go.  Good luck to you!

Thanks for the input and encouraging the thought process. In regards to my goals, I feel I like the idea of owning a home for little money into it after the refi and having an asset someone else is paying off. Making the quick 20-30k isn't really a driving force, but then on the other hand the cash flow is a little light with the 20 yr mortgage but I don't want to wait 30 years.

Really the BRRRR process is appealing and Having the house paid off and then selling and cash out later as a retirement plan is nice I think....

@Nolan Payne

I'd put it on 30 year terms and reinvest the cash flow it puts off into other deals. Terms right now are great. Lock in your 8-10 conventional mortgages on solid properties and let time do the rest. After numbers 8-10 you can still get financing you're just forced into less favorable lending terms. 

Just my two cents.