Rent or Flip hypothetical?

[Brian Tome]

An colleague closed on a single family house for $68K. He anticipates $40K in repairs and a rental income of $1400/month. The ARV will be $160K.

Based on that limited information, Rent or Flip and why?

Go!

[JD Martin]

I would probably flip that house. If you have closing costs of 10% outside of your rehab, you are still looking at a 35% cash profit on a house selling for less than $200k - that's a pretty nice turnaround. Around here, a house picked up for 68k might be worth 130, best case, in a flip. At $1400/mo rent, assuming 100% leverage, you'll end up with $300-400 cash flow making a lot of assumptions (HOA, taxes, insurance, etc), which is still decent money, but that's a 10 year turnaround to make what could have been made in a single flip - i.e., would you rather have $40k over 10 years and deal with tenants, or $40k in 2 months and deal with no one?

Everything I hold and rent doesn't make much sense as a flip. I try to use about 3 years or less as a break-even point, i.e. if my cash intake exceeds my flip proceeds in 3 years or less, I'm holding the property forever (well, maybe not forever). 3-5 years, I'd have to think it through, as it depends on the neighborhood, long-term appreciation prospects, ability to replace the property, etc. 5 years or more, I'm flipping.