Analyzing Hold vs Flip Strategy

[Chris Adams]

( there is no way to make this a short post)

I have recently decided to flip a couple homes a year, along with building my rental portfolio. At this point I am still doing 100% SFR's. After looking at all of my past deals I have come to the conclusion that every home I have kept as a SFR, would also be a great flip.

Everything I buy is distressed in need of some level of rehab.

For the most part I will be planning on flipping any home over $125k ARV, because its hard to get 1% rent on a property of that value around me. But I don't find many properties in that price range, most are in the $100k ARV range.

I need to come up with a way to decide which future homes to flip, and which to keep as rentals. My latest deal will close in about a week, here are the details.

1600 sf 3/2 ranch w attached 2 car garage

PP $51,690

Rehab cost $8k - (30 day time frame to rehab)

Conservative ARV $94k

RENT

If I rent this home I will end up financing $65k, this way I get back all of my investment and a few K for my time. I am not leveraging as much as I use to, I could pull as much as $14K out if I wanted.

I would get a 20 yr 5/2 ARM, 5.375% on $65k

Calculating PITI, PM Fee, R&M and 10% vacancy I have a DSCR of 1.20, which is my Min requirement. But since I self manage my properties I remove the PM number after I run the numbers to prove it works with PM.

Without PM its a 1.30 DSCR, or $260/ month cash flow

Great this house meets all of my parameters in order to add it to my portfolio of SFRs.

FLIP

I would rehab this home slightly different if I flip it, adding 3k to my rehab budget.

PP $51690

Rehab $11k

Total Investment $62,690

ARV $94k

Selling cost 10% ( realtor, closing cost, buy concessions) $10k

Im looking at a net profit around $22k

But I think I have to consider the taxes on the flip profits to be fair.

Using 30% taxes on the $22k profit, we now get $15,400 after tax profit.

So how do we analyze the rent vs flip scenario?

With $260/month cash flow it would take 59 months to get the same profit as the flip. But in that 5 years years we actually reduce our debt just over $10k. I will ignore appreciation completely for now since its just speculation.

Some will say money now is worth more today than money tomorrow. But then again, if REI is a hedge against inflation, how true is that statement.

Are there any metrics that I can put in place that will give me a decisive way to decide on flip vs rent?

*** please do not answer this question with the "you have to come up with what suits your strategy best" answer. In order for me to finally go full time into REI I have to do 2 flips a year.