Rehabbing to Sell vs. Rehabbing to Rent: Which is a Better Strategy?


Recently, I had a tenant move out of one of my townhomes, and I decided to fix it up in order to sell it. I had owned the property for a while, and the area was starting to change. With taxes, township rental license fees, and inspections on the rise, the cash flow just wasn’t what it used to be.

Sure, I had entered originally entered this deal with the intent to keep it as rental, but sometimes you just have to shift strategies.

When it comes to the type or scale of the rehab, a lot depends on your exit strategy.

Scale of the Rehab

When fixing up a property to sell, whether it’s a new property or an existing rental, the cost is usually more than if you’re fixing it up just to rent it out.

With a rental, the focus is more on functionality. If things are just a little outdated, it may only make sense to replace them once they’re completely worn out.

When fixing up a property to sell it, it may make sense to upgrade a lot of the features in order to move the property quickly and for a good price.


Rehabbing to Sell

But, when you’re fixing up to sell, how fancy do you get?

For example, do you use some two-tone paint or custom colors in the kitchen and bath, or do you use all one color, which is more common in a rental property? Do you upgrade some of the electrical fixtures or the flooring (with tile or nicer carpet), instead of using your go-to fixtures and flooring for a rental property that costs less or that can handle more wear and tear?

Another big question is how far do you go in upgrading certain parts of the house (whether that be the kitchen, bath, basement, or even the garage)? After 30 years as a real estate agent, I learned that if you can show the buyer a nice kitchen and bath, the deal is usually done. It’s a huge selling point.

Related: 4 Painful (But Invaluable) Lessons Learned From a Rehab Gone Wrong

The other thing to remember, though, is that you don’t want to over-improve for the area. It may even make sense to check out your competition by going to see some of the other homes for sale or rent in your property’s surrounding neighborhood.

Cons to Selling

Probably the biggest con to fixing up a rehab to sell it is the taxes, more specifically the short-term capital gain tax, which applies if the house sells and settles in less than one year after you bought it. For example, if you are able to own it for a year and a day, your taxes would be cut approximately in half since the profit on the sale would now be a long-term capital gain. Unfortunately, we all have this silent partner in the house flipping business, and his name is Uncle Sam.

Also, what happens if the property you fixed up isn’t selling, even after you’ve tried many incentives, which don’t seem to work? In my area in the Northeast, if you don’t sell by Thanksgiving, you have a good chance of sitting on the property through the winter, including paying for the heat and snow removal, until the spring market reappears.

This happened to me once, and I was forced to rent it out, as well as run the risk of the new tenant messing up my really nice house that had been renovated to sell.


Rehabbing to Rent

Fixing up a property to rent it out may be a little less expensive, but it comes with its own set of concerns as well.

For instance, it may be hard to refinance the property when completed. Banks usually like to see a property that’s passed all the code inspections and is rented to a good tenant with at least a one-year lease.

Some other problems you may encounter could be the loan-to-value they’ll allow or the possibility of a higher interest rate since it’s a rental property, and you also run the risk of getting a low appraisal on the after-repair value.

Another thing to remember is that now you’re dealing with tenants and/or a management company, too.

Many successful real estate investors try to get around this management and maintenance piece by selling the property on a rent to own basis instead of just keeping it as a normal rental. This way, they’ll have lower taxes upon the sale since it’s been over a year.

Also, the tenant would likely have more of an owner’s mindset while living in the property and would usually be responsible for minor repairs and upkeep. This is where the lease option strategy could be most effective, and it could be a way for the real estate investor to stay out of the repair business, too.

Related: Why Subpar Rehabs by Real Estate Investors Create a Losing Situation for Everyone

But the worst case scenario is where you fix up the property to sell, and it doesn’t sell or rent. Now you’re potentially in trouble since you have no cash flow coming in at all.

That is why timing is so important. Of course, you should have your exit strategy in mind before you enter the deal, but you should also know the market and be prepared to shift strategies if necessary.

For me, I prefer the “fix and flip after a year and a day by selling on a lease-option” strategy, but I’m also interested to hear what strategies other folks on BiggerPockets would employ.

Which do you prefer, fix to flip or fix to rent, and why?

Leave your comments below!

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.


    • Dave Van Horn

      Hi Carlos,

      I think the best place to start would be either Hard Money and/or Private Money. Obtaining either is usually relationship based, so if you don’t have any close friends or family interested in your potential investment than I would recommend trying your local REIA group. There’s almost alway a lender there!

      Best of luck,

  1. Jerry W.

    Nice article Dave. I think that many of us think about selling every time we redo a property and have to replace carpet or fix something we have fixed 3 or 4 times. I try to keep properties as long as I can, but sometimes it makes more sense to sale and move on.

    • Dave Van Horn

      Amen Jerry!

      That’s actually why I talk about downsizing in my last article to more “alternative” real estate investments like Airbnb. A lot less wear and tear, plus better cashflow and tenants overall. Plus it’s a way to invest in multiple markets that’s very manageable by phone and computer.


  2. Rehabbing to rent and rehabbing to sell should not be much different. In both cases, the emphasis should be a good quality and durability. Forget all the so-called trendy stuff. I will tell what happens when agents show a property that has been overdone. The buyer balks, and the agent says, “You can just take it out.” No, then the buyer is paying more than twice for the same thing. For example, refrigerators with french doors, each side so narrow you cannot even put a pizza in them. The seller expects the buyer to pay for the stupid frig plus a profit premium,and then pay again to have it hauled and replaced. No seller says, “Okay, I’ll take that out.” Same with mosaic back splashes made of tiny pieces of glass. Those back splashes look great during showings, but within six months those little pieces of glass start falling off. Pretty soon, you cannot keep up. Within a year, the whole thing looks really tacky. There are many more examples. Find that happy medium between “rehabbing to rent”and “rehabbing to sell.”

  3. Julie Marquez

    I am looking for the happy medium between rehab to sell and rehab to rent. We are purchasing a house in a nice owner occupied neighborhood that is currently down to the studs. We intent to live in it for a while, then rent it out, and maybe sell it in the future. It’s not your typical rental house, but we can make good money renting it too. So we are in the middle of picking out the finishes that are durable, but also look good enough for a resale. If it were solely a rental, I would pick plastic laminate countertops, but granite for a resale. But for flooring, I think going the most durable route is good for rentals and resale.

  4. Mark Pace

    In 2009 my business plan was buy at the court house steps, rehab, stage and sell to an owner occupant. What I failed to realize was the deals of 2009 would not last forever and sure enough investors flooded the Florida market and now the deals of 2009 are long gone. I wish I had never sold any of them. Today I buy at the court house steps, rehab and rent. The returns are very strong and each year I evaluate my pool of single family homes and sell the weakest performers.

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