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Kyle Galloway
  • Northwest Indiana
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New purchase-Flip or Hold?

Kyle Galloway
  • Northwest Indiana
Posted Nov 5 2019, 05:18

My partner and I purchased a home two weeks ago. It was a great deal in terms of price and potential resale value. One of us feels that this is a house we want to rehab and then flip. The other is not so sure and is leaning towards holding and renting. We are close to begin rehabbing the inside-and how we rehab it(how nice we make it) really depends on what our plan is. Do we rent it or do we sell it? Here are the specs:

Purchase Price         $58,000

Rehab Cost              $15,000

Total Investment     $73,000

Median Sales Price  $110,000

Post-Tax Gain         $28,860 

As you can see this would be a huge cash gain for us. Our LLC is new and could use the cash. We have no intention of pulling that cash out of the business but rather would use it to continue investing (down payments, rehab costs on others, etc.) However-our business plan is to be a buy and hold investor-not a flipper. We want passive income. One thing we have going for us on this home is a 0% family loan not owed until January 2021. We should be rehabbed by the end of February 2020. here are the renting specs/metrics

Total Investment  $73,000

Projected Rent     $1,000

Cap Rate               8.97% (does not include capx. Includes 10% vacancy, prop tax, ins, interest, maintenance, etc)

1% Rule                 1.37%  

This house will have, after potential mortgage, a decent cash flow. The metrics above are solid. However, when compared to our other two rental properties, it has the worst Cap Rate and 1% ratios of our other two properties. We can do better, even in this hot market. Also-I am using our investment as the denominator for metrics-not the market value. The market value, see above, is much higher than what our investment will be. That leads to credence of selling IMO.

What is everyone's thoughts? Again-we do not want to necessarily be in the flipping business and want long term wealth through passive income-but this seems like a property that can be sold based on the potential sales price. 

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