Just purchased 5th property...maybe a flip...maybe a rental.

[Derek Martin]

We recently closed on our fifth property. For those interested, here is the story and numbers. I would love to hear your thoughts and advice regarding whether to flip or rent.

Acquisition:

The property is in the same neighborhood as our rentals. The single-family home was abandoned because the seller had gone into assisted living. We spoke with her about acquiring the property. She was interested but informed us that there was a lien on the property. After investigating, we found that the lien was $107,000! The property was in very bad shape and was only worth $30-40k in its current condition. ARV would be about $100k.

I decided to pursue it anyways and after 2 months of negotiations with the lienholder, they accepted $5500 to release their $107,000 lien. I was extremely happy with that! We also had to pay all fees, back taxes, and closing costs. In total, we spent $15,500 to acquire the property. The purchase and rehab are all cash.

Analysis:

We are estimating $40,000 in rehab. We are converting it from a 2 bed, 1 bath to a 3 bed, 1.1 bath. I'm figuring an ARV of $100k but a conservative sale price of $90k.

Our long-term strategy is to build a portfolio of rental properties that produce significant monthly cashflow. 

FLIP:

This would be our first flip and it's hard to accept the idea of paying all those taxes. And I'm not convinced that is the best wealthy-building strategy. I really identify with the thoughts here: 

http://www.biggerpockets.com/blogs/3122/blog_posts/39457-why-im-not-a-flipper-dont-kill-the-goos

RENTAL:

We own & manage 4 other rentals in the same small neighborhood. Adding a fifth would not be a problem. The property will rent for about $1300/mo so it would be well above the 2% rule. Also, our lender will do a cash out refi at 75% LTV after 6 months of seasoning. So in mid-2015 we could pull out $85k tax-free and use it acquire the next property.

Our overall strategy is to build a portfolio of long-term rentals that produce significant monthly cashflow. 

As you can probably tell, I'm leaning towards keeping and renting this property. I'd love to hear the BP community's thoughts on this. Am I missing anything? What other factors go into your "flip vs rent" decision?

Also, here's a "before" picture.

[Mehran K.]

Smoking deal! Maybe you can share some information on how the negotiation went down with the lien holder?

I would definitely keep it as a rental! 

• You own other property in the area
• Tax free ability to pull out your initial capital + some extra
• It is line with your long term goals.

At the new ARV, does the number's match with your other rentals? Does the property cash flow well even after the cash out at the ARV? Obviously the deal is smoking and has a potential for a "theoretic" infinite return when you pull your money out. I still like to consider the 2% rule in terms of the appraised value on the cash out. In this case, $90k-$100k. Even with those numbers, I'd still do exactly as your inclining to!