Ultimate Showdown: Flips v Rentals

[Michael L.]

My friend and I have been planning on starting a real estate investment company for the last 8-12 months.  Researching, reading, making guides, listening to podcasts.

The ultimate goal is to turn this into a full-time job for the both of us in the next 3-5 years.

We're young (27) so we don't have a ton of capital to invest ourselves, but we should be able to raise some funds from family/friends.  Lets say realistically we can start out with 80-100K.

The issue we are trying to figure out is how to get things off the ground.

My idea is to do 2-4 flips in order to more quickly raise larger sums of capital which will then provide us a larger capital base, affording us more flexibility in our investing and operations in general.  This will also allow us to illustrate more appealing returns and in a good timeframe for outside money. I'd like the business to be a 2 arm approach, where the flips fund the rental property/buy & hold approach. 

My friend on the other hand, only wants to purchase a multi-family rental.  He thinks a flip is too risky.

My issue with this is, it will never cash flow enough for us to buy another property, at least for several years.  We also won't be able to go to investors, as we will not be able to provide them a sufficient return, and even if we promised to pay them out first, we run into the problem of that not being a reasonable timeline and we would not put any money back into the business to buy another property.

I'm not willing to buy just rental properties.  I want a business that can grow.

Is there an alternative to these options?

How do we reconcile our differences of opinions on this?

Is it possible for beginners to flip 3-4 houses in a year?

Is it possible to purchase additional properties after buying your first with a limited capital base?

All suggestions, ideas, opinions are more than welcome!  Here to learn!

Thanks!

[Leland Barrow]

2 27 year olds with a 100k of OTPM considering flipping or rental properties.

Flipping is fine, people make money at it. It is extremely difficult to scale, is unpredictable, and doesn't hold up well long term. The model depends on inventory that fits a fairly small financial window when acquiring. It is really no different than working a job or owning your own business just with scalability and consistency issues.

Rental properties are considered passive investments. The downside is that they take large amount of capital to acquire and often hold. A 100k may not go very far. Rentals often have to be seasoned, recourse loans can be tough, non-recourse loans can be expensive.

In my opinion the best strategy is to house hack. By the maximum amount of doors for the best rent and live in one side. Let the property season until you can refinance your down payment and repeat. This is the brrrr method and it allows you to use your seed money over and over again.

I wouldn't flip houses in this market cycle. I think flipping is overrated unless you just want to learn. If you want real estate to be your career then I would suggest you work for a construction company within the real estate industry. This will give you more consistent income, less risk, and you can learn from experts instead of learning by trial and error.