Rent it or live-in flip it?

[Gregory L.]

Hi BP Community!

My wife and I own a single-family home in a top school district. The house is a smaller colonial with 3 beds and 1.5 baths. While the interior is nice, the first-floor kitchen and bath are original from the 1940s. We bought it for $399k, and it's now worth about $650k with $250k equity. We've invested around $50,000 in improvements (central air and hardscaping) and our mortgage is a 30-year fixed at 2.5%, with a PITI of $2400.

We think it could rent for $3,750 - $4,000 per month based on local comps. Our instincts are to eventually rent it and use the income for payment assistance on a new home mortgage. However, with high rates, the next mortgage would be very expensive, and a vacancy would be intensely expensive with two mortgages. It might take at least two years before we can make a substantial down payment on a second home. 

We’re considering whether to do mid-grade updates and rent it soon if we can find a good next property though acquisition and ongoing costs are a problem. Or we gradually perform high-quality updates for a live-in flip, then roll the equity into a new home.

Regarding rental income, we aim to boost income, lower our effective tax rate by generating more low tax-drag income with rental income (since there’s not much we can do to lower out W2 tax bills) and have retirement cash flow.

To compare the financial impact over 10-20 years, we want to analyze renting versus flipping. We’re looking for Excel models to compare these options and calculate potential net worth in both scenarios. I am proficient in investing and confident in earning 7-10% returns in the market over the next decade or two. Any guidance would be greatly appreciated!

Also, qualitative ideas would be welcome just conceptually what we should do. 

THANK YOU!