Fix&Flip VS Fix&Rent VS Buy&Rent; which one is a better option for a first time investor?

Question

What are some of the advantages and disadvantages of each approach?

Which one would be a better route to go for a first time investor with no prior experience?

No negative answers or “can’t be done” from naysayers please

Huggy Baird · Answer

can't be done.  ha. kidding.

Fix&Flip. Pros: Highest returns and frees up capital most first timers need.  Cons: damn hard managing and estimating a reno. earned income tax rates

Fix&Rent. Pros: Medium returns and more steady passive income. Lower taxes on capital gains.  Cons: damn hard managing and estimating reno.  Ties up capital/money

Buy&Rent Pros: Less work and risk compared to major renovations. Lower taxes on capital gains.  Cons: Lowest expected returns. Ties up capital/money

Those are general rules of thumb.  Depending on area, strategy, and your personal expertise, you may be able to throw some of those back in my face and be a nay sayer yourself.  For example, if you have 10 years general contractor experience, you can do the " i told you so" dance with my comments on challenges with major renovations

William Bannister · Answer

Advantage : rentals holding long term = exit strategy can be planned vs tied to todays market forces.  Disadvantage in rentals is the risk is also long term as you dont know which tenant you get will be the bad one or which capital investment you will be stuck replacing or repairing.
 advantage: Builds permanent net worth and creates powerful borrowing power over time. disadvantage: management headaches if you dont out source management

Flips: advantage : quick turn on cash and large amounts of profits up front. disadvantage: Active not passive activity Good luck trying to manage 2 fix and flips while working a full time job!
  Advantage: less debt as you unload each deal your debt load is cleaned up and your flush with cash. disadvantage  More room for error as fix and flip are not for the beginner buying a fix and flip not only requires a knowledge of value but a very good knowledge of the trades.

The nicest thing about your first deal is being you can get an owner occupied loan it reduces your monthly debt service if you are borrowing money on deals. It also allows you to move into it and fix on it while living there if its a cosmetic rehab. After 2 years you escape capital gains!;) Just a thought Of course you can do other deals while the first deal your living in becomes capital gains free over time.

James H. · Answer

These statements here would indicate someone who is not headed in the direction of fix and flip success.

I prefer buy, rehab and hold for myself. I have job, so I can generate capital without real estate.

Alex R. · Answer

A journey of a thousand miles begins with a single step.
      Lao-tzu, The Way of Lao-tzu

I am not limiting myself to anything; I am just trying to figure out what would be the best way for that first step, which can be potentially the most important one as well

David Krulac · Answer

Why limit yourself to only one approach?  Some properties may lend themselves to a particular approach.

I always say, "To a man with a hammer, everything looks like a nail."

Alex R. · Answer

That’s the beauty of real estate business I guess. 
You can make money in it no matter how market is acting, if you have the right strategy and a hybrid of rentals and flip projects hand in hand.

William Bannister · Answer

I like what Huggy and Sandy have to say on this subject matter.
  How about doing some of both? Do a flip to build cash then when you run into a good duplex or triplex buy one to keep for cash flow once you get a little cash build up. This builds net worth and a retirement vehicle and  income property. It keeps you busy when a fix and flip isnt happening.  Also a few income properties with the right local portfolio lender can help you create a relationship so when you need money for a short term flip you have some credit based on your rental portfolio. 
   I will in between my fix and flip projects go back to my rentals and pull maintenance.  replace roof repair garage door. As you grow your business its a way to keep a full time employee on the clock. 
   Flipping and land lording go hand in hand these 2 segments of this business can be nice together since often times they run opposite in cyclical growth patterns.  After the sub prime blow up I quit flipping for a while but I went back to spend a lot of time on my rentals working on projects that needed to get finished. The easy money gone left me with a portfolio of rentals that toke me through the last 5 years that has not been as friendly to those trying to flip homes. The last 2 years I have begun flipping again as the market is starting to loosen up a bit.
    During the years after the sub prime blow up I did add a few rentals and it kept my business busy and moving forward. 
    This is normal if housing is booming apts will be in a down cycle as tenants leave apts to buy homes in a boom. Then once the housing industry crashes or slows down building slows and as the buildings quit going up the apt business begins to boom as vacancies are reduced by a reducing inventory from the lack of building.  So I have a business plan that does well no matter where our economy is.

James H. · Answer

Hold..as a rental

Sandy Blanton · Answer

Any FHA lender can do the FHA products, if they choose that is, many of them don't do them due to the extra work.  I have no idea about values outside of my two counties in FL.  I would find an experienced agent to advise you.  Agents with these designations are the best:  CRS, CDPE, CCIM.  IMO:)  You can google the designations and find agents in the area that carry them.

Alex R. · Answer

Fix and rent seems to be the way to go.

If you make the right deal, not only it will bring positive cash flow every month, it may also also appreciate in property value as well.

Now I need some realistic numbers:

Let’s say there is this 3 bedroom, 1 bathroom, 1000 square feet single family house for sale:

http://www.ziprealty.com/property/1813-ESTHER-DR-BAKERSFIELD-CA-93308/4779688/detail

After renovation it can rent for $ 1000 / month.

Is wells fargo going to finance this project? If so what will they ask for and is this going to be a good deal in general?

Fix&Flip VS Fix&Rent VS Buy&Rent; which one is a better option for a first time investor?

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