New investor thinking about fix and flip or rent if doesn't sell?

12 Replies

Hi there. I just attended my first bigger pockets webinar yesterday, it was awesome. Anyways I'm a new investor and have about 100k to invest would love to get some advice and insight on the following. If I want to fix and flip a home and for some reason it doesn't sell at ARV price I want would it be a good idea to use it as a rental. What are some downsides and upsides to this strategy. Thank you.

@Kp Singh yes its always a good idea to have multiple exit strategies when looking to flip properties. That being said if your goal is to flip make sure you are very sure you can sell as the rents do not always cover the cost. If you have have doubts the property will sell you shouldn't do the deal unless it's a great rental return.

Some people like SFH rentals others not so much. There is a lot you need to know and be prepared for in both flipping and renting so I would recommend immersing yourself in REI education before you do a deal or partner with a seasoned investor on the first few deals.

@Kp Singh I always go into a flip with the thought that I may need to hold it as a rental. With that in mind, I don't go after higher end properties. Be sure to have solid rental and sold comps prior to purchasing along with a legit contractor estimate. Expect to go over budget.

@Kyle Mccaw great info thanks. When am I or do I get bids for the repairs after I close or can I get them prior to buying? Or is that something I just need to guesstimate? Which I'd rather not do. I wanna be successful doing this and be able to support my family.

The answer is no.  If you rehab a house for a typical homebuyer, you will likely end up owning an over-improved rental that is not tenant-proof.

Originally posted by @Alex G. :

The answer is no.  If you rehab a house for a typical homebuyer, you will likely end up owning an over-improved rental that is not tenant-proof.

I agree with Alex's sentiment but will also add that the rehab will start to wear the moment a tenant is placed.  This in effect depreciates the rehab when a tenant is placed.

It is the same issue as purchasing a rehabbed turnkey.  The property will depreciate as soon as a tenant is placed because of wear on the rehab. 

Because of this depreciation, it is important to refinance it soon after rehab if you are keeping it as a rental (BRRRR) so that you extract as much of your original investment as possible.

Good luck

@Kp Singh I’m possibly doing that exact thing right now. I really take each property on an individual basis. For the property I’m talking about i planned to just flip it but after looking into it more, it’s in an announced “opportunity zone” with the city I’m in so the next few years they are focused on building that area up.

Now my idea is to finish the rehab and then refinance it and pull all my money back out (typicall brrrr) and then put a renter or rent to own person in it and hope for appreciation down the road.

If you have a deal you wanna talk through let me know. Always available to chat!

@Kp Singh

It depends. It depends on what your goals are. Is it Cashflow? Is it flipping and keeping every 4th property to hold in your portfolio?

It’s always a wise business practice to have exit strategies in place in the event best case scenario is not available.

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