Which Builds Wealth Faster: Flipping or DSCR Rentals?

Question

Some investors chase chunks of cash through flips. Others leverage DSCR loans to hold rentals long-term. Which path has built more wealth in your experience?

William Whitley · Answer

It doesn’t necessarily have to be an either or strategy. There are benefits to both. I have clients who buy short term and/or long term rentals, and they also flip properties. I have other clients who are builders, and all they do is buy land and build new spot construction luxury homes. I have other clients who primarily focus on flips.

There is merit to multiple strategies. One of the benefits of doing flips, assuming they are purchased for reasonable prices is that once they sold, there's an influx of money. The drawback to flips is the short term capital gains taxes.

Some of the benefits of owning rental properties, assuming they stay occupied the majority of the holding period at a market rent is the tenant pays the mortgage, there is monthly cash flow, and there's the benefit of annual depreciation that lowers the tax liability.

One of the challenges of flips versus owning rental properties is the flip is a one time event and in and of itself is not a continuous cash flow. However, I have clients who are constantly buying and selling flips, so collectively there is continuous cash flow, but only as long as they are able to continue buying and selling.

There may be times when proactively buying and selling flips is a good strategy, but as the market changes, the better strategy may be buying and holding rental properties.

One of the benefits my clients have is organized and up to date bookkeeping records and financial reports to analyze, so they can see where they are from a profitability standpoint and a cash flow standpoint. This helps them have the information they need to make informed decisions.

Drago Stanimirovic · Answer

William, appreciate the thoughtful take, especially on taxes and the importance of clean books. From my seat as a lender, I see the same pattern: flips create quick liquidity but are hard to repeat when inventory tightens; DSCR rentals scale because the financing is driven by the asset’s income, not W-2s.

What’s worked best for many of my clients is a hybrid: flip for chunks of cash, then redeploy into DSCR holds for compounding cash flow, depreciation, and long-term upside. The bookkeeping piece you mentioned is make-or-break for getting the best DSCR terms, solid P&L and trailing rent data often move pricing and leverage.

Out of curiosity, among your clients who started as flippers, how many eventually shifted their profits into rentals once the tax bite and deal flow constraints set in?

Ryan Rominger · Answer

Flips can generate quick profits but they’re very dependent on timing, renovation costs, and market conditions. Most of the long-term wealth I’ve observed has come from buy-and-hold investors, especially those using DSCR loans to steadily build rental portfolios. Over time, appreciation, principal paydown, and consistent rental income tend to outweigh the short-term gains from flipping.

Michael Smythe · Answer

depends on the property and personal timing.

Lesley Resnick · Answer

The Thing I can say with authority is, "listen to the market", the trend is your friend.  You must analyze what the market is telling you.

Fix and flips are a function of:

Local absorption rate, how long it would take a market to sell out if nor more inventory came on the market.  Even if you are correct and built 25% value, you could lose it all to the time you hold the property.

Understand the costs and time for the renovation.  It will take longer than you think.  You can come in on budget, but your timeline will go over.

Where are prices going?  What will the market look like when you are ready to sell.  Today is less important than in 6 months when you close.

DSCR:

After you pay all the bills do you have money left over when you buy?  There are more metrics and xls than could possible be useful.

What is the trend for rent?  Inflation is going strong and driving rents.  Can the average person afford the average rent in the area?

Do  you like the neighborhood?  Do you like the city.  Gary Indiana and Detroit, have some super  program numbers, but I don't want to invest there.  There is a day coming that those areas will rise from the ashes.  You could go broke waiting.

The real question is what is your risk tolerance and do want a job or to be an investor?  Fix and flip is not passive, nor should it be.  You need to watch the project or it will get away from you.  DSCR can be truly passive if you set everything up correctly.

In short, there is no right answer only each individuals situation and goals.

Lesley Resnick · Answer

Passive is a tough to define.  It is only a tax status.  If you have a property in another city and strong property management and once a month you look at the report.

On the other hand, if you have a stock portfolio and you check it every day, read the annual reports and 10ks, it is time consuming.  It is considered a good practice to  regularly evaluate your portfolio for which securities to buy, hold or sell.  Should you be buying solar companies in the current political environment or oil and gas?  While that is an easy one.  Should you buy NVIDA, is it going to keep going to the moon or is competition coming from China?  Will there be tarrifs on chips next year?  Will they be allowed to sell thier chips in China.  Starting to feel pretty active to me.

The only truly passive thing to do is hold cash under your bed and that does not have much of a return.

Drew Sygit · Answer

That's my understanding of the definition:)

Was confused though, by your statement, "DSCR can be truly passive if you set everything up correctly."?

Rental properties are NEVER passive!

Best case secenario, an owner has to engage with their PMC to answer their questions about how to handle specific events and provide funding when needed. An owner should also review monthly statements to confirm no mistakes.

Drew Sygit · Answer

What's your definition of DSCR?

Which Builds Wealth Faster: Flipping or DSCR Rentals?

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