FIx & Flip or Buy and hold
Hello everyone,
I am stuck in between buying a fix and flip or a rental property.
I am currently trying to buy my second investment property. I have an offer accepted for 70k with an ARV of 140k and an estimated 30k in rehab.
I also have an opportunity to buy a townhome at 80k with little to no repairs. The average rent in the area is 1200 and would most likely use a DSCR loan.
What recommendations do you have? Whichever I do I want to make sure I can still fund another deal, so if I fix and flip the property I plan to use a 1031 exchange into a rental property. If I buy the townhome I would be getting cashflow but not sure how I would be able to fund my next deal. I was thinking about using an equity loan on the property but not sure if it's worth it being that I would only have about 20k in equity.
Any advise is much appreciated.
First, congrats on getting the second project underway!
If you plan to scale your portfolio fix and flip is the way to go. The goal with buy and hold is to build generational wealth - which is the long term goal - and you need a certain amount of capital get there. Taking down one property at a time can slow down the path to scaling substantially. As you learned with your first project, flipping is all about making profit, faster. What you can do it start to hold onto some of the properties you flip, for example for every 10 properties you flip maybe you hold onto 2, or 4. You keep the profit moving for future investments while refinancing and holding onto the best ones.
Hope this helps!
I would fix and flip the 70k property. With rehab at 30k and ARV of 140k, you are looking at about 26k in profit if you use a hard money loan. Buying a townhouse as a rental with no repairs is not a good strategy. Without any repairs you lose the opportunity to add value/equity which means your cash will be stuck longer in the house. Townhouses also have HOA/condo fees, which is a fixed expense, decreasing your cash flow.
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Doing some fix and flips to beef up your initial nest egg of capital is a great idea while you'll eventually want to start scaling via BRRRR since you're only as good as your last flip and BRRRR offers way more long term wealth building potential via depreciation for tax purposes + appreciation for leverage purposes and of course cash flow.
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Lender
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Quote from @Mark Angel:
Hello everyone,
I am stuck in between buying a fix and flip or a rental property.
I am currently trying to buy my second investment property. I have an offer accepted for 70k with an ARV of 140k and an estimated 30k in rehab.
I also have an opportunity to buy a townhome at 80k with little to no repairs. The average rent in the area is 1200 and would most likely use a DSCR loan.
What recommendations do you have? Whichever I do I want to make sure I can still fund another deal, so if I fix and flip the property I plan to use a 1031 exchange into a rental property. If I buy the townhome I would be getting cashflow but not sure how I would be able to fund my next deal. I was thinking about using an equity loan on the property but not sure if it's worth it being that I would only have about 20k in equity.
Any advise is much appreciated.
Thank You, @Sarah Hatton, @Andrew Bang, and @Alex Bekeza for the much needed advice. That was my original plan so I am going to stick with it.
Do both use traditional financial for the rental. For the flip use hard money. Hard money cost more but you will still make some cash. The point im making is good deals are hard to find these days so I would be creative and find away to do both.
It is tough to vote for the rental without seeing the taxes, fees and expenses.
A couple of those flips and you can buy a similar townhouse outright. Keep up the good work.