How does this scenario affect me down the line

Question

So Im torn between two outcomes. I may be trying to sell a home that I am currently rehabbing, and make a small profit on it, but the fact also remains that I could also end up breaking even. If I were to Buy and Hold this property, I can cash flow, but only minimally after ALL expenditures, but only minimally. I will however, have a healthy equity position in the house.

I want to continue doing deals, and right now the goal is to do flips, so that I can bank roll profits until I get enough to become a cash leverage player, rather than relying solely on financing through banks and HMLs.

So to simplify, If I Buy and Hold this house, will I likely see my credit score decrease? And could it negatively affect my ability to do these deals in the future?

Or should I just flip and risk breaking even?

Thanks BP!

Or should I just flip and risk breaking even?Thanks BP!

Andrew Postell · Answer

@Adam Avinger in theory if you minimally cash flow on a home you still come out ahead because of the tax breaks it provides at the end of the year.  We don't buy homes for the tax break, we do it for the cash, but it's a small concession to think about.  If you make out better selling in 2 or 3 years then I would favor keeping the property for now.  If the goal is to do more flips selling this home at a break even won't help you accomplish that.  And to help with the credit item; as a lender who lends to investors holding the property will NOT affect your DTI.  If a lender penalizes you for this then go and find another lender because this is not what we as investors need.  An investor friendly lender will take into account that you rent the property and that will offset the new mortgage payment.  In theory, you should be in a better position for the next property.  But to address specifically your credit score - ANY new item will decrease your score for a few months. Credit Cards, Cars, etc.  It raises back up once they see you can make the payments for a newly opened item.  Generally it dips for a couple of months then becomes higher than it was previously.  There are a lot of factors to credit but that's the general way it works.  Hope this helps!

Adam Avinger · Answer

Ok so I said build wealth, and that certainly the long term goal. The Short term goal this year, however, is to accomplish at least 3 flips to use as a means to raise capital for further investments.

Adam Avinger · Answer

So, the overall goal is to build wealth. And because we have very little of our own money to be able to use for investing, we wanted to do flips to build enough capital to become a little more self sufficient. at the end of the day ill make twice the mortgage note on the rent. I understand that ill capture some equity buy doing a buy and hold. But i don't want to make the mistake of holding this property if it will inhibit me from being able to get involved with future deals down the line.

Andrew Johnson · Answer

I don't know how it would impact your credit score but it could/would impact your DTI (debt-to-income) ratio.  While I don't know how the credit bureaus look at DTI, banks definitely do when it comes to mortgages and loans.  Maybe the more salient question is do you WANT to buy-and-hold the property.  Some may view it as a start to building a portfolio but it sounds like it could be a distraction for you if your goal is to do flips.  If you're not planning to use a property management company it will take time and if you are planning to use one it will take money (and some time).