Every rental is a flip. Hard to turn down the proven cash

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Every rental is a flip. Hard to turn down the proven cash

Dave Molesky
Investor · Steubenville, OH · Member since 2016 · 7 posts · 0 votes

Hello all,

My name is Dave Molesky.

I've been a member on here for a few years, but I don't think I have ever made a post. I love BP and have learned and applied several good pieces of information from this site. I listen to the podcast every week. It definitely keeps me motivated and helps me improve.

I'm a Software Engineer, but I have been flipping homes on the side for about 4 years. Its been going really good and my business is growing every year. I really want to start buying rental properties but the problem I am having is every deal that I run across that would be a good rental is also a good flip. I'm very confident in flipping in my market so its hard to turn down that quick guaranteed money that I know i can make from flipping the property. 

Things are going so good why would I change what I am doing? I can just keep doing more volume. Has anyone ran into this or have any advice? 

The only other thing I can think of is trying to start with larger multifamily for buy and holds.

Thanks,

Dave

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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
8y

HI @Dave Molesky 

I think you should look into the BRRR strategy! If that rental would work as a flip, it will work for BRRR.

With the BRRR you're basically flipping the house...but they keeping it and doing a re-fi to pull that money back out. You can then use that money in your next project/to buy a rental, ect.

Here's the huge benefit to passive income from rentals- It's not subject to self employment tax like your flip income is. 

Additionally, if down the road you transition into full time real estate professional you'll be able to general rental losses against ordinary income. 


This means that potentially, with the right portfolio of rentals, you can make $200k a year flipping a few houses and not pay any tax on it if your rentals are generating enough on-paper losses. 

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  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    8y

    While your flips may be going well now, remember that it is always a good idea to diversify. When the market gets its next correction, you may be happy to get some steady rents coming in. if you have the cash, I would definitely consider larger multifamily for rentals, instead of SFHs or small multi like duplex and triplex.

    1Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    8y

    HI @Dave Molesky 

    I think you should look into the BRRR strategy! If that rental would work as a flip, it will work for BRRR.

    With the BRRR you're basically flipping the house...but they keeping it and doing a re-fi to pull that money back out. You can then use that money in your next project/to buy a rental, ect.

    Here's the huge benefit to passive income from rentals- It's not subject to self employment tax like your flip income is. 

    Additionally, if down the road you transition into full time real estate professional you'll be able to general rental losses against ordinary income. 


    This means that potentially, with the right portfolio of rentals, you can make $200k a year flipping a few houses and not pay any tax on it if your rentals are generating enough on-paper losses. 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    5Reply
  • Robbie ReutzelBusiness Member
    Real Estate Broker · Shirley, MA · Member since 2014 · 305 posts · 211 votes
    8y

    @Dave Molesky, We rehab, wholesale, and buy and hold.  To tell you the truth, if we could hold every project we do we would.  You need to consider how well these strategies do during different points in the market cycle.  Rentals that cash flow day 1 are fairly recession proof especially if you are talking multi-family.  You should also take into account the tax benefits of buy and hold investing.  We get crushed on capital gains in the flipping business.  No way around it.  

    Sounds like you're doing well but the next correction is coming!

    Good luck!

    1Reply
  • Dave Molesky
    OP
    Investor · Steubenville, OH · Member since 2016 · 7 posts · 0 votes
    8y

    I am interested in large multi family. I just need to get more experience/knowledge in that area. Like everyone says, you most likely won't find a deal you need to make a deal. I don't have any experience so its hard for me to find where I can increase value. 

    Yes I would love to start BRRRR'ing. Love the whole idea of that and that is right up my alley so would be the easiest for me to get into. This is where all the BRRRR deals are flips though as I was saying.

    As far as the market correction, I feel the same way it seems like one would be coming. However, doesn't it seem like it would be better to purchase the buy and holds once the market crashes? 

    I feel like flipping during this hot market and then purchasing buy and holds when the market dumps would be a good idea. Right now it seems we are "buying high" for buy and hold deals.

    I am anxious to jump in though. Thanks for all of the responses.

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  • Robbie ReutzelBusiness Member
    Real Estate Broker · Shirley, MA · Member since 2014 · 305 posts · 211 votes
    8y

    If it works as a BRRR deal you won't be overpaying. Those deals are very hard to find.

    The market is not likely to "dump."  It will be a slow down which has already started happening if you look at the indicators.  We're seeing longer days on market in a lot of places which is a symptom.

    2Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    8y
    Originally posted by @Dave Molesky:

    I am interested in large multi family. I just need to get more experience/knowledge in that area. Like everyone says, you most likely won't find a deal you need to make a deal. I don't have any experience so its hard for me to find where I can increase value. 

    Yes I would love to start BRRRR'ing. Love the whole idea of that and that is right up my alley so would be the easiest for me to get into. This is where all the BRRRR deals are flips though as I was saying.

    As far as the market correction, I feel the same way it seems like one would be coming. However, doesn't it seem like it would be better to purchase the buy and holds once the market crashes? 

    I feel like flipping during this hot market and then purchasing buy and holds when the market dumps would be a good idea. Right now it seems we are "buying high" for buy and hold deals.

    I am anxious to jump in though. Thanks for all of the responses.

     Yes, it's better to buy deals that you're going to keep in a down market. On the other hand, every house, every property is for sale for the right price, even if it's one of my cash monsters. Still yet, flipping is a job, in that you have to continually work at coming up with properties to rehab and sell. You can reach a point, at a relatively small number, of having enough rentals that you're done looking for deals altogether, and just absorb the cash and deal with the occasional repair and vacancy. 

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  • Andy Mirza
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    8y

    @Dave Molesky IMO, it ultimately depends on what your goals are and what investments you want to be involved in. Don't partake in the strategies that you don't really want to do. According to what you've said, I suggest that you continue to flip houses until you have a large enough down payment to buy the large multi-family that you want to. A market correction may or may not come so you might not get the opportunity to buy the rentals on the cheap. My partner and I got the timing right on our condos and bought them at the bottom of the market between 2011-2013. To me, it makes more sense buying in a downturn. 

    1Reply
  • Costin I.
    Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
    8y

    @Dave Molesky Flipping is a job, your income stops the moment you stop doing it. You should use some of the profits to get some good rentals. That way you'll slowly move from active into income creation from the passive side - better tax advantages and longer term wealth creation. There are many threads on BP discussing flipping vs buy&hold, but the truth is somewhere in the middle.

    2Reply
  • Justin Eaton
    Engineer · Magnolia, NJ · Member since 2016 · 133 posts · 135 votes
    8y

    Dave, the good thing is..if you have a flip background - it should be an easy transition into the BRRRR strategy. As this strategy can be used on 2-4 unit buildings and up and is not much different than flipping single family properties. If i'm in your shoes, i am continuing to flip the single family properties while looking diligently for good 2-4+ unit BRRRR candidates. They are a little more hard to come by, but not impossible to find. Good Luck!

    0Reply
  • Dave Molesky
    OP
    Investor · Steubenville, OH · Member since 2016 · 7 posts · 0 votes
    7y

    Thanks for all the replies. I am keeping my eyes open for multi units. They are definitely hard to come by. I’ve had had great success with direct mail for single family so I am going to attempt a multi unit campaign. I’ll let everyone know my results.

    Has anyone tried direct mail for multiunit owners?

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