Which Builds Wealth Faster: Flipping or DSCR Rentals?

[Drago Stanimirovic]

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]

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.