Flip or rent?

Question

Starting out, would you suggest flipping or renting as a first investment? I personally think some properties are more valuable as flips. I live in rural Missouri, college town, with two huge hospitals. So there's market here for both. My thoughts, and I'm posting so I can be corrected: I'm an agent and tenants are a royal pain. I've felt w many. Majority do not take a standard of care. Then there's the list of excuses why rent is late. BUT steady return. Flipping I feel would have much more upfront costs and risks, but quick bang to turn and reinvest. I'm young and just exploring ideas. And learning a ton from BP :) I know there's much more in the pros and cons of each, and that's your cue.....

John Thedford · Answer

@Lindsey CliftonGenerally speaking you will make a LOT more money using a buy and hold strategy. Imagine having a flip that will net you 20K. That money is ordinary income and taxed at the highest rate. Once that 20K is gone...IT'S GONE.Now: suppose you hold onto that same property. Suppose it nets you a small amount of $2400 per years. Over ten years, you would have made 24K (there are other factors but I am trying to get an easy example). Lets also suppose you got an average annual appreciation of 2% per year. Lets also consider you get to depreciate 3.6% per year. So, you have appreciation working for you, depreciation working for you, and 24K cash flow over that ten year period. If/when you decide to sell it, you can 1031 out of it and pay -0- taxes. Look how this compares to a one time 20K profit that was taxed in the year you made it at the highest tax rates. Now, imagine have x number of them working for you EVERY YEAR as long as you own them. That IS true wealth building. That will give you financial freedom over time. Flipping is a JOB,...and when you quit your JOB, the money stops. Landlord is a "JOB"...but....it is FAR less time consuming than most jobs and pays handsomely for the time invested. One last thought: if you ever get tired of being a landlord, you can turn it over to a PM company and STILL HAVE INCOME AS LONG AS YOU CARE TO OWN THE PROPERTY! What's NOT to like about buy and hold!!!!:)

Thomas S. · Answer

Flipping is faster wealth growth but much more demanding of time and management skills. Plenty of failures and bankruptcies. More can and does go wrong. With a good team you will grow and your profits can initially be rolled to potentially double each flip. Long term hold is slower starting and slower growing taking many years to see significant returns but is generally less stressful. However one bad tenant starting out can be devastating.Fast and furious or slow and steady.

Levi T. · Answer

Do both. Do what I do. Buy and hold rentals, and unload the low performers when the market is at a peak so you can fund more deals. With this process you should be able to buy till you run out of downpayment capital, then unload a few and buy at least double what you unloaded. Keep that cycle going and you could have a few hundred units in no time. Buy 2, Sell 1, Buy 2, Sell 1.... and off you go.

Lindsey Clifton · Answer

Kim Tucker I would flip to home owners not investors. I would rather invest where I am, I'm a mother of two and that's realistic. And yes on the multiple college students, with lease agreements for each student. Did that myself actually lol.

Kim Tucker · Answer

But in rural MO, flipping may not be a strategy. . . as a Realtor how long does an awesome properly priced home take to sell?If you are flipping who are you flipping too - home owners (I do this and it works - but we still have to usually do a bit of fix up) or to investors (who buy repeatedly) You only need 2 or 3 investor buyers to flip to.Or are you going to go to a larger city - KC or St Louis to wholesale.I am looking at flipping at the Lake of the Ozarks, but I think we would renovate to resell and while we are waiting to resell put it on the vacation rental sites and rent it out for cash flow until it sells.Plus you are in a college town, and with college rentals, you can get way more in rent if you rent to several students. Note each student signs their own lease and their parents also need to cosign the lease - so you have quite a few people on the hook to make sure rent gets paid and to go back on if they tear it up.My comments are all over the board, but just some thoughts for you.

Tyler Herman · Answer

I don't think most markets are good for both. You either have good cash flow with low or flat appreciation or you have low cash flow but high appreciation.

Lindsey Clifton · Answer

Thanks for the replies! Much appreciated!

Kyle McCorkel · Answer

Flip and hold, more commonly known as BRRRR. Search for it on BP and you will find a wealth of information. By far the most powerful strategy in my opinion.