Is it shortsighted to focus on flips as opposed to rentals?

Question

Realtor accidentally listed one of my properties on the market instead of for rent (one I had put a lot of work into) and the offers were well above what I expected. Could have sold with a 60kish profit but it was a marquee location so would rather have tenants renting it out.

Unless you have a blueprint where you can flip a minimum of 12 houses a year with a 40k+ margin on each, you're just working for money with no real long term income after buyer's sour or you no longer wish to work. Renting allows you to play the cash flow game, refinance, get out when you need to and eventually have a hefty income stream after 15 years where you only have to expand when you need to.

Tracy Selfridge · Answer

@Jay Hinrichs makes a great point. Increase the velocity of your money then buy free and clear rentals. I don't think there is no right or wrong way, people tend to do what fits them and their personality.

Jim K. · Answer

From my perspective as 100% into renovating low-income rentals, flipping versus rentals is a false dichotomy that isn't remarked on often enough. The renovation skill set and contact list to be doing spec flips for the retail homebuying market is different from what you need to be running successful rental renovations. They overlap, sure, but they're not the same. And when you add the landlording part of the rental business, whether done through a property manager or handled on a DIY basis, that's a whole different skillset that the flipper doesn't need to build.

If I lived out on Long Island, no question, I'd be running flips, with a small, trusted crew of guys I'd build up over the years. Probably never work in housing more than 40 years old. But I don't. I live in western PA and it makes more economic sense to build a DIY-based C-class rental business in 100-year-old properties. I'm pretty good at repointing brick and fixing plaster-on-lath now. I'd be better at granite and custom cabinetry if I were on LI.

Jacob Sampson · Answer

Whether you are flipping or buying and holding it is still work.  With buy and hold you can pay a PM to handle most of the work but you can pay someone else to do the labor for flipping.  To me, one isn't more short sited than the other.  They are just two separate businesses that happen to both make money off of real-estate.  Some people think that because they both have to do with real-estate that if you are successful at one you will be successful at the other.  They truly are different "industries" and require their own separate skills and experience.

I would caution making financial decisions because of something being in a "marquee location".  That is emotion or ego based decision making.  Emotion is for friends and family and ego rarely gives a return on investment.  If selling pockets 5+ years of profit all up front, you just sell it.  IMO.

John Collins · Answer

Absolutely, every aspect of investing is very much a case by case basis, not a one road leads to paradise journey. My intent was to ask those who FOCUS on flips, doing multiple properties at a time, if it really turns into a gig job for them seeking out properties , filling up a market then moving on to the next city or state. And what happens during the lulls when things don't sell? Everyone gets excited when a few flips net a huge profit, you see other houses in the neighborhood do it as well, then all of a sudden after a few years you've got these empty expensive homes that no one wants for the new price point because of new builds or location or yadda yadda.

Brian Roberts · Answer

@John Collins

So as it sits now you could cash flow $300 per month. That means that $60000÷300=200 months as a rental to make profits you could make tomorrow. Even at what you might get out of it at $600 per month that's still 100 months of operating.

If I  had the option to make 200/100 months of cashflow in advance with out ever having to rent the property  I would

I you were only going to profit 5k then I would rent it for sure as you could make the same profit in less than 2 years.

John Collins · Answer

As a rental, has only been on market for month but demand wasn't great. I just received an offer cash flowing about $300/month after additional expenses, and that's where the market lies. It could be $500-600 the closer we get to summer but I like the tenant application. I can't see it appreciating past the "buy" offer, but I do see it being in a very desirable location with high quality tenants wanting nice schools for children.

Brian Roberts · Answer

@John Collins

Sorry for the confusion. That wasn't what I was getting at. How much does your property cash flow if used as a rental? 60k÷cashflow would be the number I was asking. Point being if your cash flow was say $500 per month it would take you 120 months to make the same 60k as selling. If you were making $300 per month cash flow it would take you 200 months of perfect renting and no major out of pocket capex. I personally buy and hold, but there is a number that makes sense for me to sell as the short term profit would expedite how quickly I could grow.

John Collins · Answer

I spent 4 months on it because I did most of the work myself and with a helper. I could have done things in 6 weeks with a crew and it would have cut down my profit to 35-40k. Each flip is unique to the demand in the neighborhood, the age of the existing home,  loccation etc. and a myriad of other factors. I just don't see how you can successfully do them in markets outside of LA, NY (where there is never ending demand) year round. Eventually areas get saturated, new builds start to come up and the buyers could go cold. I assume habitual flippers move from market to market (across cities and states) to find the right properties?

Brian Roberts · Answer

@John Collins

How many months would you need to work in your rental to make 60k? That's the biggest issue with being set in just flipping or just holding.  There will always be a number that makes sense for you personally to do one or the other. Even if it's not your preference.

For example my 35k property cash flows $300 per month in a C neighborhood.  So $3600 per yr if rented and no major problems occur(eviction,major capex). If I could sell it for 55k tomorrow I would do it in a heartbeat.  The 20k would take me 6 perfect rental years to make. However the proceeds of the sale would allow me to buy 2 similar properties. Having 2 would increase my cashflow from $300 per month to potentially $600 per month. That would allow me to scale twice as fast.

All depends on your situation and needs. I think most would agree that both flipping and holding are jobs even when using property management. Just because you flip this one doesn't mean you are stuck only flipping.

Is it shortsighted to focus on flips as opposed to rentals?

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