Flip or Rent out??

[Jon Peterson]

Hi all-

I recently purchased a duplex from a unique seller, and was able to buy it at a good price that gives me some options. I am thinking about buying and holding and also thinking about flipping. I know I am supposed to have a game plan and exit strategy going into the purchase...I was planning on buying and holding, but the thought of potentially flipping is looking better and better!! I am wondering if there are formulas or calculators people use to guide them here? (i.e. minimum cash on cash ROI to keep as buy and hold,etc) Here are some numbers:

Purchase price: 70,000

25% downpayment, 4.25% interest, 30 yr mortgage, PITI comes to about 475$,

Total cash invested upfront: $21.5K

BUY AND HOLD NUMBERS:

The property is in what I would call a C to C+ neighborhood. We have already had tenants who we have background checked and seem like very solid tenants come through who want to sign a lease. Rents would be 850$ and 800$. 

1650$/month in total rent 

100$/month in water/sewer/trash

8% vacancy=132$ (VERY strong rental market here, vacancy will likely be lower. Had 50 inquiries in 48 hours of posting the ad)

10% maintenance and capex (should this be higher? building in pretty good shape overall)=$165

Monthly net cash flow= 1650-100-132-165-475=778$

*Note: I will be managing myself, so no management fees yet.

FLIP OPTION:

House would likely need about 10K in rehab, putting my total cost at 31.5K

I would list it for 135K, would be happy selling for 130K. 

I am a real estate agent, so no 3.3% commission to sell, so figure cost of selling will be 3.5% total. 3.5% of 130k=4,550

So, total proceeds from sale would be 130K-4.55K=~ 125K. 

paying off the 54K mortgage, and factoring in the 31.5k out of pocket, leaves a profit of roughly $40,000

Am I calculating this right? Hold time would likely be 30-60 days, so factor in another 1,000$ in holding costs. One other factor is that there is a retaining wall that will need to be replaced in the next 5-7 years. This will likely be a $15,000 job.

A little background on me. I have 2 duplexes that I manage, so I have a little experience in Buy and Hold. I have never done a flip before, so I'm not sure if i'm analyzing properly. Part of me wants to take the money and run as I'm not 10000000% confident in this neighborhood. My long term goal is to have enough income producing properties to be able to live off the cash flow. Any help is much appreciated! Feel free to let me know if I left something out or if you have questions. Thanks!!