Sell a profitable rental to start a house flipping business?

12 Replies

Hi everyone,

This is my first time to post, so I'm hoping it's in the right place. 

I've had a rental for about three years, it's worth about 165K and I owe 65K on it.  My renters just informed me they are ready to move.  This investment earns a decent rate of return and has cash flow every month.  It's a good house, 12 years old, it strikes me as one of those rentals that could be held for a very long time.  

My question is, should I sell it to start a house flipping business?  100K would be enough to at least get started, with the help of some hard money lenders.  I've wanted to do this type of business for quite a while now, but never had the capital available to me, until now. 

So I realize this is a very broad and general question, just wanted to get some opinions of other investors.

Thanks in advance for your advice.

Chad

What is your monthly rent on the property?  

I like the monthly cash flow - could you increase rent.  I am selling two properties that are in good areas but homeowner occupancy instead of rentals.  I should net $80k with both properties and I am reinvesting in rentals... for me I love the passive cash flow.

You also have to take in play capital gains.

Why would you sell it? Keep it, Refinance and pull out the equity. Use the equity to start flipping houses and still have a house that cash flows.

This is the definition of real estate investor. Use your real estate to buy more real estate.

I am a new investor but classes that I took and attended a lot of seminars seem to give the same advice as Simon Shih. If it has cash flow, and is in good condition for renting, don't sell it. Just simply pull out some equity and use it to flip houses while you can keep the cash flow.

You may want to look into a HELOC on the property as well. A HELOC is a line of credit secured by the property and it will leave the existing mortgage in place. It can be used just like cash. You can use and pay back, over and over. They are a little more difficult to get on a rental properties but it is possible. It depends on the lender. Some will and some won't, but it is a very effective strategy to acquire more properties.

Originally posted by @James Ehrig :

You may want to look into a HELOC on the property as well. A HELOC is a line of credit secured by the property and it will leave the existing mortgage in place. It can be used just like cash. You can use and pay back, over and over. They are a little more difficult to get on a rental properties but it is possible. It depends on the lender. Some will and some won't, but it is a very effective strategy to acquire more properties.

Thanks James, I really appreciate your help. If you happen to know any lenders that offer this could you PM me? I've not had any luck locating a lender that will still do a HELOC on a rental. I've searched for quite a while.

Originally posted by @Simon Shih :

Why would you sell it? Keep it, Refinance and pull out the equity. Use the equity to start flipping houses and still have a house that cash flows.

This is the definition of real estate investor. Use your real estate to buy more real estate.

 Hi Simon, thanks for replying.  I'm wondering what options are available in doing a cash out refi.  I was looking at doing a refi on this property but it would've cost about 5K in closing and origination costs to get about 50K.  Does that sound right?  Seemed a little steep to me, but I've not done a cash out refi, so it may be the normal cost of doing business.  Would love to hear what you think. Thanks.

@Chad Jones I really think it depends on your personal situation. Selling it could free up MORE cash to invest in flipping in the short term, but 18 -30 years from now you won't have a 165k plus possible appreciation paid off free and clear.  Are you confident you have the skills necessary to flip profitably? Then it might be more profitable to bet yourself as flipper. I had a family member sell a rental two years ago and everyone thought it was a horrible decision. She invested the profits into her tattoo business and now when she's on vacation the shop makes her 2k a week. She invested in herself. 

If you want to be a buy and hold real estate investor, refinancing is the way to go hands down. Refinancing could still be the way to go. However, refinancing isn't always a option for people with high dept to income, etc and selling could free you up to bet on yourself. I agree with the others, but every decision depends all information at hand. What do you think the opportunity cost is to keep it? We can figure out what the opportunity cost is to selling? 

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