To flip or hold? That is the question

To flip or hold? That is the question

Cory LucasPro Member
Rental Property Investor · Brighton, IL · Member since 2019 · 431 posts · 139 votes

I’ll try and keep this short and if you have questions I don’t cover then I’ll elaborate, hope that works

I have 3/1 house I'm currently rehabbing, my 2nd buy and hold investment. The plan was to BRRRR and keep it, but with the market being relatively hot in my area I'm thinking on maybe flipping it? Primarily cause we had some financial setbacks to where we could use a good windfall to kind of reset the coffers so to speak. However I'm wondering if that will be a mistake as by the time I'm done pretty much everything will be done with the house, new HVAC (unplanned) and huge trees being trimmed to name a couple big items I planned to tackle down the road. Not to mention I haven't really explored how selling it and things like capital gains would affect my taxes or really done my homework yet on that if I do flip it

So, while I'm not trying to be vague, I just wonder what everyone's thought may be given the market being pretty good right now, so a good time to make a healthy profit versus hang onto it. Other piece that's attractive to me flipping it would be due to those unforeseen expenses I won't be making quite as much on the BRRRR. However of course holding it my capital expenses should be pretty minimal for awhile

Thank you for the time and responses in advance

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Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y

I personally have a strong bias in favor of buy and hold.  However, in your situation, the reasons for flipping now seem pretty persuasive.  If you feel like you are standing on a ledge financially, it is hard to make good decisions.  If you have held the property for less than a year, you will pay taxes are your ordinary marginal rate regardless of your intent to hold or flip.   Good luck.

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  • Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    I personally have a strong bias in favor of buy and hold.  However, in your situation, the reasons for flipping now seem pretty persuasive.  If you feel like you are standing on a ledge financially, it is hard to make good decisions.  If you have held the property for less than a year, you will pay taxes are your ordinary marginal rate regardless of your intent to hold or flip.   Good luck.

  • Cory LucasPro Member
    OP
    Rental Property Investor · Brighton, IL · Member since 2019 · 431 posts · 139 votes
    6y

    @Darius Ogloza thanks for the response. I think either way I go will be fine, it’s just the temptation of offloading it while the market is hot for a good profit that has me perplexed at the moment

  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Is there an opportunity where you can sell it and 1031 into something else? That's the realistic option for you to actually move your gains into something else without the penalty and of course - now you have to figure out what to buy. Try to look at what else is available and that might answer your question. The 30% cap gains you'll have to pay is a huge fee you have you consider with the option of this investment. 

  • Cory LucasPro Member
    OP
    Rental Property Investor · Brighton, IL · Member since 2019 · 431 posts · 139 votes
    6y

    @Lien Vuong definitely appreciate the insight. Part of the homework I need to do if I go that road for sure. I haven’t been really actively looking here recently, just kind of here and there...

  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Account Closed Here is how I would look at it.  Calculate your expected cashflow if you held it (less vacancy, capex, and maintenance).  Now calculate what you'd expect to clear if you sold now (less title fees, commissions, and taxes... remember you might get a 20% passthrough on taxes so it may not be quite as bad as you thought... talk to a CPA).  Now, take what you'd expect to clear on sale / your expected cashflow.  If you would clear more than 5 years (or more) worth of cashflow NOW to sell... I'd sell.  Take the sales proceeds and go buy 1-2 more deals that you would hold, and generate bonus depreciation to help offset your gains (do this in the same year to be most effective). 

    Now you are accelerating your velocity of money!  Making your first reposition on a property 5 years earlier than if you held it!

  • Cory LucasPro Member
    OP
    Rental Property Investor · Brighton, IL · Member since 2019 · 431 posts · 139 votes
    6y

    @Whitney Hutten great info! Sounds like I’ve got some math to be looking at ;)

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