To Flip or Not to Flip!

10 Replies

Buying a foreclosure, I’ve bought a home and have $35k in equity before I’ve fixed the home up. We are planning to Flip the house. However, I like the idea of cash flow monthly. I also want to buy other property with the cash if the sell amount is high enough. Thoughts? Flip or hold?

Nobody can answer that question for you. If you tell us your long-term goals, your financial situation, your level of experience, the potential flip profits, the potential rental CoC/IRR, your plan for managing the property, etc., then maybe we can provide some basic thoughts and recommendations.

I work full time and make a decent living. My goal is to be able for my wife an I to depend on our rental income to support us financially. Flipping this house would hopefully give us cash to put in on other deals. I could rent it for $900-950 a month and that would allow me to Gross $450-500 a month.

If you want a vote, my vote is to Flip.

Do a real good job on the upgrades to the house. Have it assessed and if it's value is significantly greater than what you already have into the unit, remortgage the house at a rate where you could rent it and still have +'ve cash flow but get some equity out to make another purchase. 

Soundsto me like you're looking to BRRR.

Hey @David McClain

It sounds like you are not taking all of the factors into account with having the property be a rental. It seems like you are only calculating the mortgage payment and forgetting about maintenance, capital expenditures, property management, taxes and insurance, and vacancies. 

It could still be a good rental, but just make sure that you are taking everything into consideration. 

I would recommend checking out the Bigger Pockets rental calculator, it is an excellent resource. 

I appreciate all the responses. Just so I’m clear, I’ve calculated the rental amount and subtracted all the expenses(mortgage, capx, insurance, taxes, vacancy, repairs) and this property like one I have in the same area I’ll perform well as a rental. The area is hot and going through a boom. My goal is to have multiple properties in the area. I’d like a duplex next, and need some cash to tie up land to build one or purchase one. I wanted to have some cash to do deals instead of borrowing or taking my equity out in a home every deal.

Just keep in mind, if you flip the property, you will pay short term capital gains. If you really have equity, you can refinance at 80% of the appraised value and put some tax free money in your pocket. Check with your lender on how long they want the property seasoned before you can refinance at the appraised value.

You keep saying you want cash flow and it would make a great rental which is your ultimate goal.

So why are you even considering flipping? Treat it as a BRRRR and enjoy the best of both worlds.

Originally posted by @David McClain :
Buying a foreclosure, I’ve bought a home and have $35k in equity before I’ve fixed the home up. We are planning to Flip the house. However, I like the idea of cash flow monthly. I also want to buy other property with the cash if the sell amount is high enough. Thoughts? Flip or hold?

 It sounds like you need to go to pen and paper for this one.

Calculate what you will net at the completion of the sale.  Remember, just because you calculate $35K in equity doesn't mean that is what you will net after sale.  Consider closing costs (even without a Realtor you have costs of sale), and capital gains (people always forget to calculate this as a cost of sale).  Circle that number.

Then, calculate your net cash flow from the rental.  Be sure to deduct all expenses like mortgage payment, taxes, insurance, repairs, and so forth.  The taxes will be a little more difficult as so many of the items just listed can be deducted, and it is harder to add back in that value, but just know that it is there.  Take this net cash flow number and calculate how many months it will take you to equal the net proceeds from the flip option.  

Then, have a discussion with your partner/spouse (you mentioned a "we").  YOu MAY find that the regular monthly cash flow is more valuable to you than getting the quick flip money now because it not only builds a healthy monthly revenue for you that you can build on (not only for saving for the next project, but also to help you qualify for larger projects), but also will, in theory, build in equity as well.  

Building wealth comes in many forms.  You have to decide for yourself which path you want to take toward that goal.  THere are no wrong answers, just preferences. 

@David McClain

Like @J Scott said, you have to figure out your priorities.

Flip= more cash on hand

BRRR= more sustained income

Flips over time= make more money doing more work faster

BRRRs over time = make less money doing less work slower

If you want to continue to flip houses, you can potentially make more money, but you're also taking more risk, and putting in much more work. Can you sustain and balance that with your full time job and the rest of your life? That being said, you have to start out with some cash somewhere. Flipping this house may set you up to purchase another to BRRR in the future that's more profitable. My recommendation, first figure out a long-term plan, then make your decision.

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