Rent or Flip?

[Fadia Eramya-Sealy]

Hello,

My husband and I are selling our home in Michigan to move back to Las Vegas.  We're netting about $130k from the sale of our home and have a little more in savings. We would like to purchase a home in Las Vegas with only 5% down, live in it for 2 years , fix it, and then sell it. Since Vegas is such a hot market, should we buy, renovate, sell, OR rent? Either way, we would like to use the property as our primary and live in it for 2 years to avoid capital gains. We're planning on buying another property in 2 years to start building our portfolio. Should we sell that primary or refinance and do a cash out to buy another property and then rent it? 

Also, we're planning on renting the first 6-12 months in Las Vegas so we can take our time finding a property and not feel so rushed. I hate to throw money away on a rental, but we just don't want to rush into just any property. What are your thoughts about renting for 6-12 months. 

Any guidance would be greatly appreciated. 

[Mason Liu]

Hey Fadia,

Firstly, congratulations on the gained equity in your home in Michigan!

While I personally don't think you need to make the decision to flip or rent out after 2 years of living in the home now, I do think it is important to take into consideration what the rent/sale price of the home would be after 2 years in your deal analysis now. IE: choosing a neighborhood that has strong appreciation and strong rent growth historicals will allow you either exit strategy after 2 or more years most likely. After 2 years, you would be able to determine what equity you'd be able to derive from the house from a sale/refinance, what you'd potentially be able to rent it out for and how much you'd cash flow, and most importantly in my opinion if you are able to find another property to put in the proceeds of the sale/refinance into and gain a higher return on investment.

If the property is in a desirable location with strong rent growth and price appreciation fundamentals, and you have the ability to self manage effectively or have a good PM, I would lean towards keeping the property as a rental and potentially doing a HELOC or Cash out refinance to use towards another property. The cash flow from the rental is one thing, but having a property that can and has 2X - 5X'd in the past over 10-20 years that pays for itself is very powerful towards wealth creation.

Hope this yelps!