To flip or rent?

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To flip or rent?

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If you rent it and can hold onto it for 6-12 months (depending on bank) to season it you could do a cash-out Refi and get up to 75% of the appraised value back, that would be all your cash and credit card debts and would still have it to rent and no tax.Did you buy the REO from a local bank or was it straight from Fanny/Freddie (homepath homesteps)? we just bought a fanny REO and there was a clause on the deed we couldn't sell or put a security interest on it for more then 120% of purchase for 3 months.

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you can always 1031 exchange the property for a new one and keep moving up from there. you can also take your profits to invest in a buy and hold and then use the losses at tax time to offset the gain.

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@Jason Prendergast This is a tough question to answer because I do not see anywhere in your post where you outline what dollar amount in repairs you estimate need to be done.What is that number?If the numbers work for a flip and sell wouldn't that make more sense, considering your last dollar and then some is invested in this thing? If you sell it, yes you will get taxed, but at least you will have some breathing room.

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I guess the answer lies in what is your profit after tax? Or, what is your monthly cash flow after expenses? My latest adventure turned into a flip that I kept. My reasoning was, I would profit about $5K if I sold it. The cash flow was really good and it would make a smart long term rental. Also, a lot of expenses are minimized because I replaced just about everything.

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Bill you are absolutely correct. An oversight on my part on the 1031.

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@Jason Prendergast I don't think this is a tough call at all really. I think @Andy Mink pretty much had this pegged out for you. You had mentioned the goal was passive income right, well flipping isn't really all that passive, at least not in my mind. Even if you aren't the one doing the labor it's still work to make it all come out right in the end and see it done right.Renting is more passive in my mind than flipping, or at least it is supposed to be - it can be work too depending on the situations.So you have a property that will be worth 109-110K. 80% is 88K and you have 75K invested. So do a refi as soon as you are allowed to under your purchase guidelines and get your 75K back for your next deal and take the additional 13K and add it to the rehab budget or down payment on another property or pay yourself a wage or whatever you want to do with it - that is your profit and you still own the house and (this is the important information in making this decision) rent it out ASSUMING that local rents are enough in the area for you to cover all expenses each month.That seems like the perfect situation considering you want to grow passive income and avoid a huge tax bill and the fact that you are in the middle of this thing as we speak.Lots of people are in envy of where you are right now in your investing Mr. P. Best of luck on all your deals!!!

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@Jason Prendergast I hope that the Agent who made the listing error is not the same Agent (or even possibly in cahoots with that same Agent) who you have been using for 8 years (you can see where I am going with that thought)?The only reason I can see for you to sell it (after rehab) rather than start your goal for passive income with this one, would be if you are SURE that its profits will enable you to get into even BETTER deals, that would otherwise be unobtainable. Cheers...

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Hi Aaron, Unfortunately, this is not true if you are a rehabber/flipper. Properties acquired for rehab and then immediate sale do not qualify for 1031 Exchange treatment. You must have the intent to hold for rental or investment (vs. held for sale) if you want to qualify for 1031 Exchange treatment.

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The long term goal is to have enough passive income to not work a regular job. We figured starting out by flipping would increase our cash, and at some point yet to be defined, we would pick up a rental property. we will have 25k in repairs and renovations on this property.

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Flipping vs renting depends mostly on your personal financial goals. Some properties make good flips, some make good rentals, most make neither and some could be either. This one seems like it would be a decent flip.Credit card isn't a good long term financing option make sure to factor that in. Maybe think a bit differently about the taxes. Always minimize your taxes as much as possible, but a big tax bill means you made a bunch of money.