Fix & flip a house bought 20 % below market or refinance and repeat?
Hello dear fellow investors,
I've just bought an easy fixer upper that only needs cosmetic improvements (a fresh coat of paint, new flooring, tiles in the kitchen and bathroom, clean the pool). I bought the property 20–30 % below market value from a motivated seller in a very hot market ($702k $562k).
At first I was planning on doing the fix & flip strategy, since I invested 50 % of my own money into the deal (because high interest rates). That way I would make a profit of approx. $56k in 4–6 months.
However, I am also considering to keep the property, live in an ADU I would add to the property and keep the house as a short/mid-term rental. That way it would not only cover the mortgage payments, but would also save us $1k per month for an apartment that we're currently renting. I was thinking that once the interest rates go lower again (in a year or two), I might refinance the property, get that initial investment of $280k back and buy more properties. The mortgage payments would then stay the same or be even lower which could add another $300–$500 per month in cashflow.
In the meantime, the property is also going to appreciate by forced and natural appreciation at a 5% rate per year. So let's say I would be potentially able to sell the property in 5 years with a profit much larger than $56k – potentially $400k.
The problem: since this is my second property, I am still a newbie and am not sure what's the smart move here. I am afraid of the “can't see the forest for the trees“ situation. What is my overall motivation is that I love real estate, am getting better and better at it and would love to eventually do this full time.
The question is:
– Either I make $56k now
– I rent the property out, save $1k monthly, refinance in 2 years and get that initial investment of $280k back to invest further
– Or I wait 5 years and make potentially $400k, however the whole market is going to appreciate as well + inflation and am not sure if that's smart
I am stuck in the analysis paralysis world and would love to know what a more experienced investor would do.
So thank you all for helping out a newbie. :-)
