Rent, then Flip?

Question

Hello,

I am starting out in real estate investing (live in an owner-occupied duplex currently), and am interested in single-family homes.  Does anyone have any advice on the following plan:  buy a nice (but outdated) single-family home, rent it out for a while, then do a renovation to sell?

Thank you for your input!

Michael Seeker · Answer

What would be the goal of this approach to investing?  It sounds like the only real benefit would be to pushing the capital gains into long-term from short-term.  This would be a nice benefit, but you could potentially be missing out on a lot of cashflow by not renovating before a tenant moves in (either through lower rents or longer vacancy).  This is also predicated on either getting a really good deal to start or prices appreciating significantly (in which case the rehab might not even be necessary).

There are many investors that look to stabilize rental property then "flip" it for something bigger/better, but I'm not quite sure that what you're describing fits this mold.

Rafael Floresta · Answer

Hey Rachel! Good job on starting with a duplex. It can be a good strategy, but it depends on how much time and money you have in your hands. Also, it depends of how fast you want to grow your real estate portfolio.

If you are in it for the get rich slow but surely, buying, renting and rehabbing is a great strategy. You will be able to pay capital gains instead of regular income tax, and will also be able to have some cashflow for that time.

I personally prefer to rehab my properties before I rent, that way I collect more rent and I am able to refinance for more. I usually buy with cash or some form of loan that has low origination cost (heloc, friends cash, etc), and then refinance in for 30y.

That way I can keep acquiring properties as long as I can find deals.