What would you do if the market changed after you bought your flip?

Question

If you bought a flip a few months ago, started the rehab, and are now getting close to completion —what’s your move?

Seems like the market has slowed down and things are staying on longer. If the house isn't selling, what would be the best plan of action?

Would you:• Keep lowering the price and wait for a buyer?• Rent it out instead and move forward with a DSCR loan, potentially pull up to 80% of your cash back out, and continue investing while you wait for a better time to sell?

• Open to any other suggestions or options.

What would you do—and why?

Chris Seveney · Answer

I think the answer is it depends. How bad has it changed from your initial outlook?

One thing I always recommend for investors is to plan for the worst and hope for the best. If the average day on market is 30 days, in my proforma, I would carry it 60 days. If we thought the renovation would take 3 months, I would most likely carry it for 5 to 6 months. It's always best to be conservative to make sure the numbers work. If things take longer or there's some softening, it is easier to absorb.

It is difficult to answer the question without actually knowing the figures to provide an answer, because at the end of the day, it will depend on your personal financial situation. Whether you can keep it as a rental and lose money potentially every month and afford it, or have to sell it

Kasing Ng · Answer

One thing worth flagging before you decide, because it usually moves more money than the price cut: these two options are taxed completely differently.

Sell the flip now and the IRS likely treats it as dealer property. The profit is ordinary income plus self-employment tax, and no 1031. Worst tax rate there is.

Rent it and do the cash-out instead, and the money you pull is tax-free, because a loan isn't a sale. You also start depreciating the house, which shelters some of the rent. Hold it as a real rental long enough and a future sale can even shift from flip income to capital gains.

That last part depends on your facts, so check with your CPA. But the point is these aren't just different cash flow, they're different tax brackets. Worth running the after-tax numbers on both.

What would you do if the market changed after you bought your flip?

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