Fix n Flop vs Rental Property

19 Replies

I’m just starting as an investor , I am going to purchase my first property soon but I don’t know what to turn it into . Would it be wise to turn my first property into a rental property after a year ? Or find a property under 80,000 and fix it up and flip it for more .

Like I said this will be my first property. I have a subcontractor that I work with for renovations on my current home, but I’m not sure which one to invest in wisely .

Please help & thank you !

I currently reside in Clarksville, TN and will be purchasing either here or Nashville, TN .

This is unfortunately the type of question where the most common response is, "it depends".

Much of you decision should be based on your goals, both short and long term.  I for one like to find opportunities that are versatile and lend themselves to multiple exit strategies.

For example, I look for homes that are undervalued and require light rehab. In that case, it could easily become low involvement flip, a BRRRR rental or possibly even a rent-to-own option. I like when the numbers work for multiple strategies so I don't back myself into a corner.

Deciding which avenue I may pursue at any given time can be influenced by a number of things.  If I want the cash back now to put towards another property or I don't have the time to devote to a new tenant, I may opt to flip, but if there is rental demand for the type of property I just purchased, I may be more likely to go that route.  I usually go with what provides the greatest opportunity.

The more options a property provides, the better.

@Annette Hardge

What @Brandon Roof said. There's no answer other than "it depends"

I funnel every deal through wholesale, flip, rental, new construction, etc.

Based on the numbers, work, time required, my current financial position. I ask myself what would make the most sense. 

For example:

I find a property that needs a ton of work, that wont make a great rental. I'm low on cash right now and I don't have all that much time on my hands. In this case I'm going to wholesale the property. 

The same property. I have plenty of cash, no other projects. I'll probably flip it.

It really just depends. Once you find your property, sit down, look at your situation, run the numbers and ask yourself what the best route would be. 


Annette, if you are brand new at real estate investing you may want to ask yourself the following:

Am I looking for quick hits to increase my cash-on-hand and quickly grow my bank account balance

OR 

Am I looking to grow my cash flow and portfolio for the long-term through passive income for retirement, to quit your job, for children college expenses etc.

If the former, then do Flipping.  If the latter then do rentals.

I'd advocate for buying a BRRRR, but of course as the others mentioned, it depends on the property. I typically buy BRRRRs, but I'm currently in the middle of my first flip, with renting as a backup strategy.

The property was a great deal, but just didn't make sense as a rental. The taxes were higher than our typical rentals, the house needed a full renovation, and the neighborhood is primarily owner occupied. If we cashed out 75% of the ARV our monthly cash flow would have been very low. So we would have had to leave some money in it for it to be a decent rental. Just made more sense to sell and cash out everything and move on to the next rental purchase.

Run the numbers both ways, then decide. Good luck!

A lot of great advice here already; I'm inclined to agree in thinking that a BRRRR method might be your best bet but all comes down to what your goals are (I like the way others broke this out - h/t @Herndon Davis)

@Luka Milicevic Got it, I should way my options and just go with whichever one deams more appealing/benefiting to my needs . As from you being in the Nashville area what have you seen that is more beneficial . ( As to you and your needs )

@Herndon Davis If I have more cash on hand can’t I use that to invest more into real estate, via multi family properties and commercial .

@Kathryn Pierce I am sorry , like I said I am new and learning what does the acronym "BRRRR " stand for ?

Thank you for replying also !

Originally posted by @Annette Hardge :

@Herndon Davis If I have more cash on hand can’t I use that to invest more into real estate, via multi family properties and commercial .

 Yes cash is King, the more of it you have the more leverage you have to invest in multi-family and commercial.

Originally posted by @Annette Hardge :

@Herndon Davis So longterm = Rentals | Short Term = Fox and Flip . Thank you !

YEP! you got it.  So where are you now. Long-term or Short-term mindset?

 

@Annette Hardge BRRRR, Buy Rehab Refinance Rent Repeat. Go to the podcast section of BiggerPockets and type in BRRR. Very informative!!!

@Annette Hardge I am loving Clarksville. The cost of a house vs rent is way better than Davidson county. Nashville is pretty pricy and it’s hard to compete. Plus with Ft Campbell.... the tenant pool is pretty good.

I only buy and hold in A and B areas, if I were buying in C or lower, I would flip it get it off the books.

@Annette Hardge I think you should start out with a small multifamily (2-4 units), rent those out, and scale your way up to bigger buildings

@Kristopher Lamy

Although there are times when I utilize basic formulas, percentages and calculators to quickly analyze a property (particularly for rentals), I'm more often looking at the properties individual qualities against those in the neighborhood and where I can add potential value. I recently found a 2 bed/1 bath home selling for less than other comparable homes in the area, and upon entering the home, learned that with a few thousand dollar investment that it can easily be transformed into a 4 bed/1.5 bath home. It has two rooms that simply need closets framed in and a second toilet in the basement lacking a vanity. With little work its bumped into a class selling for 30k-$70k more instantly making it a great flip or BRRRR candidate that would allow me to collect another $200-$300 in rent per month.

Another 2 bed/1 bath home had a huge master that was going unappreciated.  One wall transformed it into a 3 bed home.  Other big selling points on this one for me was that it had a simple roof (single peak, no valleys and a decent pitch) and only five windows yet managed to have amazing natural light thanks to a small footprint.  Maintenance and repair on this property will be significantly less than others with more intricate roofs and 2-3 times the number of windows.

Getting back to your initial inquiry, it's key to know your numbers.  Find out what the actual property taxes have been in recent years and build a relationship with an insurance broker that will be able to provide you actual quotes on the fly so you aren't left guessing.  I see so many people budget a percentage of the rent or forget to budget for them altogether, only to learn that they'll actually be 50%-100% higher than they thought.  Same goes for all expenses.  Learn as much as you can and leave as little as possible up for question.

Same goes for the other side of the equation.  When determining what rent will be many people input a number in order to make the deal work for them.  Even if they know that the current tenant pays $650 a month, they'll put $800, assuming they can get more without justifying it against comps in the area.  Just don't dig yourself into any hole you can't reasonably get yourself out of.

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