To Flip or To Rent?

Question

Hi all, curious to see what you think I should do with this deal:

Price: $49,000
Renovations Est: $44,000
ARV: ~$145,000
Projected Rent: $1,000/mo

What would you do with this property? Fix and hold or fix and sell? Is there a way to evaluate what would be more beneficial?

As a note: I got started in RE investing three months ago and currently have three single family properties. I am always looking to add more to my portfolio, but I have also had an interest in getting into flipping. I'm leaning towards flipping this home in order to have quite a bit of cash for my next purchase, but don't want to pass up a super cash-flow positive property at the same time.

Thanks,
Trevor

Robert Steele · Answer

Err, I don't think that's right. Shouldn't it be the NOI/ARV 6000/145000 = 4.1% = Absolute stinker.

I am a buy and hold investor but I have to agree with a few others here; flip it.

David Krulac · Answer

@Ian M.  Jim M.

There is no requirement that the relinquished property must be held for a minimum of 1 year to qualify for a Section 1031 exchange.    In fact there is no period specified in the IRC.

Ian M. · Answer

How about fixing then a cash out refi (if the newly refi'ed mortgage still provides cash flow).  You generally have a 6 month seasoning period, but that's not bad compared to the 12 months for a 1031.  Im a big fan of "if i work hard enough to find a good deal, why give it away"?

Shaun Reilly · Answer

Part of the equation is how are you planning to finance the purchase and rehab?
With that much rehab you aren't walking in and getting a 4% 30yr loan.
You need cash, private money or a commercial loan.
I'd assume the end game on a rental would be a refinance to pay off the expensive loan or cash out.
If it is a cash out you'll probably need to wait awhile.
Also keep in mind the payment will be higher then people are saying since it will be on like $90-100k not <$40k.
For okay cash flow I'd flip it and use the profits to buy better cash flow on a place that needs less work.

Jim M. · Answer

You've got to hold the house a year so keep that in mind.

Trevor Martin · Answer

Jim M. This is another big plus. I've had my eye on an apartment building over the past month or so, so I could sell this flip tax-free and use that $145k as a down payment if the seller will come down to my terms

Jim M. · Answer

1031?  How about a slow flip and and trade up?  Pros you make some rental income and save a bit on taxes but cons could be the renters, market cooling etc.  I say flip it quick and get into another flip or a rental.

Trevor Martin · Answer

Thank you Ned Carey Bryan Hennen Brad Friesen Peter  Moser Jerry W. Ryan Moses David Krulac Jon Klaus Alexander Stafford, all of your input is very appreciated.

I think I'm going to go with a flip and use that cash to purchase a couple buy-and-holds that cash flow a little better.. or maybe even another flip! While flipping is something I'm new to, it's good to diversify and get out of your comfort zone.

Thanks again!

Jon Klaus · Answer

Forgot the link:
http://www.biggerpockets.com/forums/55-new-member-introductions

Jon Klaus · Answer

Welcome Alexander. Why don't you tell us about yourself at New Member Introductions?