Rent or Flip
Looking for some thoughts/advice. I recently purchased a home at an auction and am deciding whether to use FHA and living in it for a year or so until I can buy a duplex and move into the duplex then rent it out or just flipping it and taking the profits to go find another deal? I am leaning towards keeping it as a rental due to a couple of reasons such as findings multi families in my area now is pretty scarce and it is in a good rental area near military base that consistently has people renting. I got it for $67K and conservatively would appraise for $130K, most likely more than that. Thanks for your input!
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Welcome to BiggerPockets!
Based on what you're sharing, I would flip the house. With the potential of receiving $63K (not including other costs), you may be able to purchase two other homes. One you can purchase with a FHA loan and another as a rental…or reload at the auction.
You have a great “problem” here, but I recommend running the potential numbers of each strategy to be sure.
I wish you all the best.
Welcome to BiggerPockets!
Based on what you're sharing, I would flip the house. With the potential of receiving $63K (not including other costs), you may be able to purchase two other homes. One you can purchase with a FHA loan and another as a rental…or reload at the auction.
You have a great “problem” here, but I recommend running the potential numbers of each strategy to be sure.
I wish you all the best.
You have to do some math homework now. What is the market level rent for your property? If it is high, say like 1500/mo, it would be better to take a loan against it and use that money for more investments. If the rents for the area are relatively low and demand to buy it is high, could you buy multiple single family homes with the profit on a sale?
@Josh Fleck- you might consider using a conventional loan - put 25% down and keep it as a rental and keep your FHA avaialbility open ...if that down payment is too high - the FHA angle sounds wise to use
Hey Josh,
well it seems like you have 2 choices here.
either living in it for a year with FHA, then buy a duplex and rent it out or you sell it for a profit and you can find another deal.
Renting the property could be a good idea because there are not many multi-family properties in your area and there is demand for rentals
But remember that before making a decision, think about your goals, financial situation, and investment strategy.
Let me know if this helps. :)
- Min Zhang
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#2 House Hacking Contributor
- Real Estate Agent
- Los Angeles, CA
You purchased a home at auction and want to do a cash out refi with an FHA loan, correct? If your $130K is correct, then why not do conventional because the equity is there?
If you sell as a flip, you are taxed as ordinary income. Therefore that roughly $55K in profit is now somewhere in the $37K range after taxes. That won't get you very far. If you live in it for two years, then the profits become tax free. If you end up renting it out, you can do a 1031 exchange later on, deferring capital gains taxes.
Remember: Flipping gets you rich, rentals build wealth. I've sold my rental but I did a 1031 exchange into multifamily properties. Better cashflow with lower risk.
@Josh Fleck I would rent and hold on for a year or so. You could 1031 exchange after that period and get in to a cashflowing multifamily. A lot of options with this strategy. I have a client that owned a house and then 1031 exchanged into 32 units in KC area and had some great cash flow. Can share with you the details if you would like?
Thank you all for your advice. I believe I am going to use FHA and live in it for a year and fix it up to rental condition while also giving myself a place to live and then cash out refi to be able to use for another property then renting it out due to decent rents in the area and such a low mortgage payment.