Should i use as a rental or flip? Charleston, SC

[Michael Kelly]

Hey guys/ gals

I would love it, if someone can help me out with a question that i have. Is it better to use a house as a rental or a flip? Im speaking in terms of Charleston,SC or any other area in the south that doesn't have as much traffic as......lets say New York or something. Please get back to me soon. Thanks 

[Michael G.]

@Michael Kelly -That really depends now doesn’t it? 

Lets talk about the rental...

Can you rent it for more than you pay to service the debt on it? Let’s run some numbers and let’s keep them round for this example. Let’s say for Principal, Interest, Taxes, Insurance, Maintenance, Utilities, Management and Vacancies, (use the acronym PITIMUMV to remember these expenses) you have to pay $400 a month. If you can rent it for $550 then you have $150 a month of cash flow. That’s a good thing. You have to pay attention to your numbers because if you get this basic formula wrong you will not be happy with the outcome. If you get it right then you have a tenant that pays off your house for you and when it’s paid off you have an asset that produces income when you are asleep. That’s what a lot of investors invest to achieve. Cash flow income or passive income. In other words you do the work once and keep getting paid over and over until the asset no longer performs.

Let’s talk about the flip...

If you flip it, how much can you make after you have accounted for the purchase price, repair costs, closing costs, carrying costs (insurance, utilities, cost of money, etc.) Let’s use some more round numbers for your flip example. Let's say it cost you $30K to purchase and $25K to repair and you have $10K in closing and holding costs. You sell it for $95K. You just made yourself $30K in profit, Of course you have to pay Uncle Sam so you don’t get to keep the whole $30K but you get my drift. This kind of income is referred to as capital gain income. You should research it to find out what the tax ramifications are because it is not the same as income you receive from your rental example above.

Other posters may have some better commentary on your question but hopefully you have gained some insight on your query but the answer is...

it kind of depends now doesn’t it?