so I am relatively new to the site and I love following the stories.
My father and I are looking to help make him some extra money so he can retire early as well as set me up for the future. I am 24 with 2 rentals already and he just has a ton of land and a home. We have discussed the options of buying rentals or buying and flipping. I am a full time licensed realtor in Alabama and have full faith in market knowledge and such.
Need input on whether to go with more rentals or to try and flip some together( I have done one myself). How do I explain the benefits of one with him being able to understand the logic behind it.
Hey Forrest, I would recommend a little of both. First, figure out exactly what end buyers are looking for. For example, you can flip a 3/2 much easier than a 3/1, so if you find a 3/2 that hits the sweet spot, flip it. It it fits better in your long term portfolio, then hold onto it. Sometimes, you may get in at a price that is to high to justify a flip but may be a great long-term hold.
@Forrest Atkinson It really depends on so many factors. My advice looking through my own subjective experience is this:
If you have liquid money then immediately start doing rental flips and cascade them to add a new one to your portfolio each year and become millionaires. If you don't have liquid cash then do flips, cash out, rinse and repeat until you can start doing rental flips as mentioned above.
Flipping is a great way to make a lump sum in abort amount of time.... But things can go wrong, hidden issues emerge, some renovations can drag on too long. The ability to make a lot is the real goal here, if you want to make quicker money that doesn't last, this is the way to go. These tend to be riskier, but can pay off a lot when it all goes well.
Buy and hold is the best option for longer term goals, and the way to truly build wealth. Placing good tenants is key, that makes this whole renting process so much easier, be stringent on screening. Make sure the HVAC, water heater, and appliances work well, those are the most common issues that I deal with maintenance wise, that can be a big financial hit when renting if you're not ready for with a reserve. If you do it right and find a good deal to rent on you can cash flow, and I would always recommend aiming to get cash flow on a rental, breaking even is ok, but you should always cash flow some amount from a rental. If you do it this way you get a nice monthly income, build equity as you pay down the loan, and in most areas your house will continue to appreciate value. Even if you only rent it for a 5 years or so you can enjoy all three benefits mentioned above (equity depends on your loan and how much principal is actually getting paid). Also I would recommend leveraging, don't buy properties outright to rent. I recommend learning how to do a cash on cash analysis and you will see the benefit to leveraging.
Really depends on the goals with your investing, but buy and hold is always going to be the best option, it is a continual income stream, you do not have to hussle all of time, and you can cash out down the line if you want once the property has appreciated nicely. Sounds like you have a good bit of experience, and good knowledge to help your Dad understand benefits to both sides. Best of luck to you both!
I concur with the folks who say do both. Do some flips but hold on to some as long term rentals. The flips will help you build cash for the down payment on the rentals (normally 20-25%) and then the tenants will pay down the mortgage as time goes by. Just be sure to have money set aside for emergencies and normal issues. Again, flipping will help build this to a nice safety amount.
If your Father is having a hard time understanding the logic behind what you want to do then try a different approach. If he has the funds / liquidity and you have the experience then see if he is willing to do short term loans for you to buy properties to flip. Do a couple flips and get him paid back as quickly as possible. This should prove that you are able to do what you say and benefit both of you. Tell him you will be happy to secure his investment in your project with a mortgage or some written document that he feels comfortable with. This will help him see that you are not just wanting a hand out and show him that you have a plan. It will also help you gain experience with working with other people to try to secure private money for future projects if you get to a point where you need to use private money.
Always keep an open mind and think of ways one venture will help with another venture. That is how the game is played. Keep your money safe and keep other people's money constantly working for you. If you are able to do flips to fund rentals then eventually your rentals will find another venture which will make you even more money. Then you use that money to find the next step.
Really look and see what and where you want to go with wealth.
Filps are quick riches and Buy/Hols are long wealth-buliders.
I perfer the buy/hold because of the benefits to eliminating or reducing my W-2 income
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