Rental Property Investor · Miami, FL · Member since 2018 · 67 posts · 25 votes
I have been acquiring rental properties for the past two years. I partnered up with a good friend from college and now we also manage other people’s rentals and find deals for them. I have built a strong team and now have some free time.
I have been considering start flipping houses as I have the time, energy and resources. But I also understand the risk behind it and it would be my first time doing it.
I am not sure if I should keep doing rentals or try out flipping a house.
My downside on the first option is that I will be running out of cash after a couple houses (with leverage of course) as the money will sit there. As opposed to house flipping that I can continue to do it over and over again.
What are your thoughts on this? All advices are appreciated.
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
6y
I take house flipping and rental property owning as two very different things. Personally I flip, but don’t think it’s a good flip for everyone. There is a much bigger question mark of whether it will sell and make you money, verse a rental that will most likely always be rentable (whether making good money or not).
Another thing, in the current market, flips are getting snatched up with such little profit margins, you will most likely need to be all cash to do the deal and that draining of the bank account with no guarantee when and how much comes back in also isn’t for everyone.
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
6y
I take house flipping and rental property owning as two very different things. Personally I flip, but don’t think it’s a good flip for everyone. There is a much bigger question mark of whether it will sell and make you money, verse a rental that will most likely always be rentable (whether making good money or not).
Another thing, in the current market, flips are getting snatched up with such little profit margins, you will most likely need to be all cash to do the deal and that draining of the bank account with no guarantee when and how much comes back in also isn’t for everyone.
I do both and the # of flips has gone down for the last few years due to lack of inventory/margin. Flips are like home runs (assuming things go well). Buy and holds are like singles. Either way, they will get the job done. I flip the homes that I can buy at a good price but don't match my return requirements and I hold the ones that typically do. Remember that if you get the ball rolling for buy and holds, you can eventually buy a house every month or two based on the cash flow from your rentals .
I have been acquiring rental properties for the past two years. I partnered up with a good friend from college and now we also manage other people’s rentals and find deals for them. I have built a strong team and now have some free time.
I have been considering start flipping houses as I have the time, energy and resources. But I also understand the risk behind it and it would be my first time doing it.
I am not sure if I should keep doing rentals or try out flipping a house.
My downside on the first option is that I will be running out of cash after a couple houses (with leverage of course) as the money will sit there. As opposed to house flipping that I can continue to do it over and over again.
What are your thoughts on this? All advices are appreciated.
Flipping can be a great strategy and a good way to build cash to invest in other assets. You need to have a good system to bring in deals and good contractors to get the work done. Once those systems are in place you can do very well. You can also do retail flips and keep the ones that make good long term holds as well.
Lender · Member since 2019 · 604 posts · 160 votes
6y
Flipping is a great way to build up your cash. Leverage other peoples money. Use Hard Money you canusually get 90% of purchase 90% of repairs max ARV is 70% to 75%.
Flipper/Rehabber · Spanish Fort, Ala · Member since 2019 · 97 posts · 88 votes
6y
House flipping varies from state to state. Local economies have a big effect. The area l live in Spanish Fort, Mobile Ala is one of the fastest growing economies in the country currently and houses are moving. Whereas l do most of the work myself flipping. l save a lot of money. My profit margins are higher much higher if I'm willing to do the work myself and hiring one my son's to get the $12000 tax credit. Check out IRS tax credit for hiring a son or daughter. Having a good realitor is helpful for sure, whereas your using the same realitor over and over negotiate on the commission. I'm thinking around 3.75 percent. It maybe hard to get that rate with well known real estate co. but if you find a small real estate company you can negotiate a better commission. With the negotiation l offer a $1000 bonus to the agent through the broker, if the house sales within 30 days and closes. After the thirty days it drops to $500. I also work with the same company and agent when buying and selling.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
6y
My business partner and I are doing a similar thing. We are mostly buy and hold but have recently started flipping since we can't find any buy and hold properties.
A couple of thoughts came to mind as I read your post.
1. You asked should I keep doing rentals or try out flipping a house. I would say do both. If your core business is buy and hold then continue to buy any great deals you come across. If you run into an opportunity that makes sense as flip give it a try.
2. My experience with flipping has been disappointing. I have discovered I am much better at making money as a buy and hold than as a flipper. We are working on our 3rd flip right now. We will see how it goes.
3. I would recommend starting small to ensure that if its a mistake its a small one.
4. Buy and hold is much more forgiving of mistakes than flipping is. Ultimately, you have one chance to make a profit. Once its sold, it is what it is. With buy and hold if I paid too much or discover higher than expected deferred maintenance I simply hold it long enough to get all my money back.
I take house flipping and rental property owning as two very different things. Personally I flip, but don’t think it’s a good flip for everyone. There is a much bigger question mark of whether it will sell and make you money, verse a rental that will most likely always be rentable (whether making good money or not).
Another thing, in the current market, flips are getting snatched up with such little profit margins, you will most likely need to be all cash to do the deal and that draining of the bank account with no guarantee when and how much comes back in also isn’t for everyone.
So true. Just because they both make money from real estate doesn't make them the same business. In the same way that being a chef and owning a Red lobster both make money from selling food, but are not considered the same job nor require the same skill sets.
Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
6y
It's a great idea! It's just tough to execute profitably. It may make sense to partner with someone for the first one or two; someone with several flips under their belt and then see how you can help them. If they're a successful flipper, they don't need you in the equation unless you bring the property to them with a nice spread and you taking less than them. I see a lot of people eat it 1. on the rehab and 2. overshooting the ARV and then holding it on the market too long to make that price work. Have realistic-to-low expectations on sales price and work with those numbers.
Lender · Raleigh, NC · Member since 2019 · 36 posts · 19 votes
6y
As others have alluded to, I think it is a good idea get all of your team in place so you can confidently move on properties as they arise with as accurate of budgets as possible. Give yourself realistic estimates. Build your network of buyers and other avenues to acquire properties, so you can have options to know which deals offer greater profit or better suit your goals. Your experience with rentals will only help you if you want to refinance and hold onto it long term, as you likely know what it takes and what the returns look like for a property in a given area.
Rental Property Investor · Miami, FL · Member since 2018 · 67 posts · 25 votes
6y
@Randall Weatherall
Thank you Randall. Let’s say I want to partner with someone. As I mentioned in my comment, I have the time, resources, even got my real estate license. I just don’t have any experience flipping (as I have never done it). What would you say a good structure/split could be with a flipper?
The only flips I do now are either REO (cash sight unseen mostly), through wholesalers, and very very few retail sales on MLS. Usually it is an all cash bidding war and you have to be lucky.
Traditional sales can be done but the ones that are available have quite a bit of competition to win or they are just mega projects. Margins are bit less these days as well. I don't flip in warzone or even in C/C- areas. They can be pretty profitable if you have a great team but I don't feel comfortable doing them there. in the B and A areas, it is truly slim pickings. It really depends on your margins. if you don't mind 10-20k margins, there are still some deals out there. But at those margins, you better know your numbers inside and out.
Thanks Jacob. What went wrong with your first two flips? Something you could have improved or change?
Definitely could have done things differently. My partner and i have done a post mortum (sp?) after the first two flips and here is what we learned.
First flip:
We partnered with 3 other people. It's tough to make money splitting it 4 ways. But we were new and wanted to mitigate our downside risk. Also, the labor partners just didn't perform as we expected them to. Lesson learned - successful partnerships are rare. There will need to be a very compelling reason for us to partner in the future.
We made the classic mistake of fixing it up too nicely.
Final result - We took 6 months to remodel rather than the planned 3 which forced us to put it on the market in Oct/Nov. Not ideal. We made $2500 and parted ways with the partners.
Second flip
Taking lessons learned from out last flip we did not partner and we didn't go over board on the remodel...that was good. Our problem this time was that we were so anxious to get it sold that we allowed the buyer to negotiate a better deal than we should have. Add to that after inspection we had to replace the roof for $3200. But again we just wanted it sold and estimated we were still making a profit so we didn't renegotiate we just got the deal done.
Final result - Upon reviewing this flip we realized we had just lost $2700. Meaning on our 2 flips we are averaging negative $100 per flip. So, as I always say, remove emotion from the deal. We should not have been anxious to sell. Worst case scenario we could have held it as a rental. It would have been totally fine and we could have slowly recouped our money. AS soon as we knew we had to replace the roof we should have renegotiated or just put it back on the market. Remove emotion, I always give that advice to others and then when it comes time for me to follow it I failed.
Rental Property Investor · Miami, FL · Member since 2018 · 67 posts · 25 votes
6y
@Jacob Sampson
Jacob this is so valuable information. Thank you for sharing your experience and advice.
I wish tons of luck on this third deal, which I’m sure you guys will kill it with all your current knowledge and experience you have. Keep me posted on the outcome.
Rental Property Investor · Miami, FL · Member since 2018 · 67 posts · 25 votes
6y
@Eric X.
Thanks for sharing this information.
On the REO side, do you always buy cash or have you used leverage? If you have, how is that process done? How do you deal with the bank/lender that owns the property? What timeframe for closing they give you? Are you allowed to perform inspections? Average inspection period?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y
House flipping a good idea? Is driving a car a good idea? - Depends on who is doing it. If you can drive a car safely and effectively, it’s a good idea and beats walking. If not, better for some to walk. Same with flipping. You need a good team, systems to source deals, means to fund deals and manage contractors, and a sales team to exit from them. Your team is almost everything with YOU being a large asset or detriment to that team.
One of my biggest mistakes made (of course hind sight is 20/20) was not keeping more rentals while flipping so if you turn out successful flips, don’t stop your buy and hold, increase it with your flip profits. Also remember your tax exposure from flips will be much greater than buy and holds.
On the REO side, do you always buy cash or have you used leverage? If you have, how is that process done? How do you deal with the bank/lender that owns the property? What timeframe for closing they give you? Are you allowed to perform inspections? Average inspection period?
Cash makes things simpler. Homes in poor condition, from wholesalers, and sometimes on the MLS all require cash since it wouldn't appraise due to condition. Well for MLS & Online REO you deal with a settlement company and or closing company so they are the conduit usually. Courthouse auctions you bid and buy. No Bank involved.
MLS you have a listing agent so you don't really talk to the bank directly at all. For the ones that you can get into you can usually do an inspection but sometimes the utilities won't be turned on for that inspection.
It is much cheaper to buy cash and they do a cash out refinance than to buy with a mortgage. Thousands saved in closing costs as well.
@Eric X. I don't understand what you said about saving thousands in closing costs doing cash on cash deals. Can you explain?
If i buy a house for 200k. My closing costs would be around 6k~ if I used a 25% down conventional loan. If I buy cash and then cash out refi to 75% my closing costs is 2-3k.