Flip or rent? What lead you to your decision?

Question

What made you want to purchase a multi-family and rent out the units than to buy, flip and move on to the next project?

Each home I've purchased I always made sure the basement had a walk out so I can rent it out. With the exception of one tenant, I've been lucky enough to have tenants who paid on time and didn't complain much. The one that rents out my basement now is fantastic and pays rent way ahead of the due date. We've had our minor issues here and there (she saw a mouse, small things broke and needed repair etc) but it was nothing major and usually got resolved pretty quickly. I did have one nightmare tenant that constantly complained. She eventually left after 4 months (I do month by month leases) but I can only imagine the hell I would have got if she saw a mouse or came across any of the other issues my current tenant brought to my attention.

This may be the last tenant I rent to- I frankly just don't want to deal with it anymore. She's also set the bar so high that honestly don't think I can find a replacement that will even come close. She's kept my basement very clean and again, has paid rent on time (sometimes weeks in advance)

With that said, I can't imagine handling 4 tenants at once. Each with a different personality and demands that will probably drive me up the wall. At this point, I just want to buy, fix, flip, close and move on to the next project.

Tell me how you guys deal with the headache of tenants? Are there advantages to rent and hold than to buy and flip? Am I missing something here?

Cassi Justiz · Answer

So a few thoughts here, buy and hold is a completely different game than fix and flip.

Passive income is a HUGE aspect of the buy and hold piece that you can not get if you are flipping. If you don't flip, you don't get income. With rentals, you get income, mortgage pay down and some crazy tax benefits while not having to do "work." Essentially flipping is a job, while buy and hold rentals are an investment.

Not everyone wants to deal with tenants and THAT'S OKAY! That's what property managers are there for. For you it sounds like it would make sense to hire a property manager. I self-manage my local properties and have a property manager for my out of state property. Sure the property manager skims a portion of my rental income each month, but I get ZERO tenant calls or drama on that house. I get a monthly statement that details any small issues and a call/text from the PM with big issues. I have never met my tenants in that property and I don't plan to. My last tenants were a PITA and called about everything, but I wouldn't have known that if the PM wouldn't have told me. Apparently my current tenants are wonderful and handle all of the small maintenance issues and only call for big things, but again. I wouldn't know if the PM didn't tell me.

I have a check deposited into my account each month, tenants pay down my mortgage, and I have a great tax write off that requires minimal effort on my part. I also get some income each month regardless of where I'm at or what I am doing.  That's the beauty of buy and hold.

Jacob Sampson · Answer

There are definitely advantages to buy and hold. If I purchase a 50k property with 20% down on a 15 year note and the property does nothing but break even for the whole 15 years and doesn't appreciate in value I now have 50k in equity. In 15 years my 10k invested is now worth 50k. Thats 500% growth over 15 years. That's a 33% return. What happens if the property does appreciate over 15 years and I don't just break even but I actually have positive cash flow. It gets ridiculous.

But it comes with hassle. If the hassle isn't worth it to you no big deal, go a different route.

That being said, earning money is always a hassle. I have a full time job, I have to go into work and be there 8-9 hours a day...what a pain in the butt.

But it comes with hassle.  If the hassle isn't worth it to you no big deal, go a different route.

That being said, earning money is always a hassle.  I have a full time job, I have to go into work and be there 8-9 hours a day...what a pain in the butt.

Bryan O. · Answer

@Mike Shahi they are apples and elephants. Flipping is a job, plain and simple. It is not an investment anymore than being a Realtor is an investment. It is a self-employed job.

Rentals are investing. Is it always passive? Heck no! Any investment without middle men will not be passive. You can get property managers and such to reduce that headache. I found with the units I manage that I started to dread checking email after a couple of years. The reason was I am super busy and the time it took to drive there and back (1.5 hours) and do the work was just too much, but I knew how much money was being saved so I felt obligated. I ended up making my time into fun math:

(Cost to have Contractor do it) / 2 = Fun money!

I do not have much discretionary income, so having full-on guilt-free screw off money made it worth it and I don't mind calls anymore. Maybe there is a simple root cause for you. Or maybe rentals are just not your flavor of "passive" and you can look into performing notes, lending, or something else, or maybe you just want to flip and build capital. Best of luck!

Mike Shahi · Answer

@Jacob Sampson I wish it was that easy in DC/MD. Landlord laws in DC favor the tenant. Same for MD. It's very hard to put people out. In DC I know you need a business license in order to rent your home or even a room in your home. It has to meet code and that itself is a process- if you don't get licensed and attempt to evict, not only will you get fined for not having a license but the judge will throw your case out.

this was another reason I was thinking of taking the buy and flip road- the strict tenant laws here in MD/DC

for educational purposes- check it out

https://dc.curbed.com/2017/5/23/15681204/tenant-law-bill-of-rights

Jacob Sampson · Answer

@Mike Shahi - Yes property destruction and non paying tenants are a problem.  If the tenant doesn't pay you evict, and quickly.  In Kansas, It takes anywhere from 2 weeks to 35 days to get a tenant out for non payment.

Damage is another story, I try to inspect my properties twice a year to catch it early, but, yes that can be a problem.  Becoming good at choosing tenants is 75% of the battle.

If the place burns down due to fire or whatever else you are covered by insurance, so that is not an issue.

Mike Shahi · Answer

Awesome insight. Thanks to you both. I agree Jacob- money is a hassle. I was at the Apple store the other with people complaining left and right about issues they were having with their product. That's any business- you need to deal with headaches.

Cassi is right to- no matter where I am and what I'm doing, I get income each month. Not only are my tenants paying my mortgage down but I have cash flow coming in.

My other fear is non paying tenants, destruction of property etc...what happens when the place burns down because a tenant forgot to put her cigarette out? Or the roof blows off because of a storm? I need to look into insurance and landlord laws in DC/MD.

Jacob is absolutely right- my property can appreciate and can be paid off by tenants. In 15 years, a paid off property and cash flow. Woohoo!

I have a lot to think about.

Jacob Sampson · Answer

I agree with @Cassi Justiz.  They are two totally different games.  Just because they both deal with real estate doesn't make them interchangeable.  They require different skill sets.  Soccer and Basketball are both played with a round ball but they arent the same game and a good basketball player won't be good at soccer and vice versa.

I think it comes down to your goals, your skill set, and personality.

I own 38 units as rentals and have for the last 15 years.  I attempted my first flip this year and my realtor made more money than my partner and I did when all was said and done.  I learned a ton and will likely do better the next time, but...

Flip or rent? What lead you to your decision?

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