Hold vs. Flip

7 Replies

Excited new member! I am a real estate agent here in the Dayton and Cincinnati Ohio area. I just purchased my first investment property and would love any guidance on holding vs flipping. I purchased the house for $45k and I'll put $20k into it. I can probably sell it right away for $90k minus realtors fees or rent it for $850 a month.

@Mike Wall   Good on ya for getting one done.  Better than many investors who don't even start.  When I look at a property I have a spreadsheet that I took off of the files section and modified it for my needs.  That tells me what cash flow I should be getting. 

After vacancy, repairs, capital expense reserves, property manager, PITI I like to try and clear around $200 per unit. Sometimes that happens, sometimes it doesn't. If it doesn't then I see what area of town it is in and make the tough call then.

65k houses with $850 rents for me in my analysis are really borderline.  Might be a better play to take the cash and have down payments for multiple houses

Oh yeah, theres a webinar tonight at 8pm est for analyzing rentals

Just my opinion

Hey Mike. I'm a fix and flip guy so I'm biased but I think it depends on a few things. Do you have the capital to get into more properties if you hold it? Will $20k get it done to flip it or just rent it out? If $20k will do it you'd get a pretty nice return on your investment. Especially if you were able to take a comission when you purchasedif you bought it long proration and can sell it short.

I'm with @Sean Dawson on this one. 65K house for $850 rent would be low. Nice to know that you have a backup that you would break even on but I would definitely go for the flip here. Plenty of cheaper houses in decent neighborhoods with the same rent in Cincy and Dayton.

I'm totally biased; I think you should do both flipping and rentals. Which category you put this specific priperty in depends in your goals and current situation. If short capital, it is a flip, if plenty of capital, and its in a neighborhood you like, keep it.

It's not always about the ROI; drama, or the lack of it, matters.

@jacobmurphy the answer really depends on goals, objectives, and criteria, doesn't it?  A time honored benchmark is the gross monthly rent should be no less than 1% of the property value.  $850/mon on a $65,000 property certainly meets that.   Some investors who contact me want a multiple of that.  To use this case as an example, 1.30 x 1% x Property value.  

It depends on the neighborhood.  It depends on your niche.  Lower income neighborhoods you will want more...double?  But then, if you do exclusively Section 8, you may be willing to come off that number because you are assured of getting your money wired into your account every month.

If it's a home in a neighborhood that has a high ratio of owners to tenants, you may be willing to accept a ratio closer to 1% because of the stability and demand for homes in the area.

The point is know YOUR metrics so you know whether an investment is a go or no-go for you.  Today's investor world is a world for specialists not generalists.  Become an expert in your chosen niche.  If you want to invest outside of your wheelhouse to diversify, you are better investing passively with someone who is a specialist in that niche rather than experiment.

Rules of thumb are definitely variable across the country. It used to be that people followed the 2% rule, and then the federal government started printing money, and now it's the 1% rule. 

In my Cleveland rental neighborhoods, I will pay no more than 60 times the monthly gross rent and I target a multiple of 40. You'll also have to be aware of the typical expenses in your area like taxes, water and sewer, and rental registration fees. 

My favorite pastime is buying wrecks, petitioning the county to revalue the taxes down to the purchase price, then totally renovating them and enjoying a few years of unreasonably low taxes (I pay $100/year on one property that makes $725/mo rent!)

I am also very biased as to which is better, flipping or holding. I have flipped 100's of houses and currently have right at 100 rentals. When you flip a house you have to flip it another one to get your next paycheck. When you hold and rent you keep getting a paycheck from the same property over and over and over. :-) 

Spending $65,000 for $850 a month rent is not very good however. We average $40,000 per rental and average closer to $995 monthly with tenants paying all utilities. We do mostly single family homes. As Mr. Carson mentioned, we also get the county to lower the value of our new purchases to our purchase price, so we pay much less in property taxes for quite a few years. 

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