6th buy and hold property or possible flip?

[Ciro LoCascio]

I am excited today to submit an offer on a Fannie Mae property. Its an attached twin sfh 3 bed 2.5 bath approx. 1450 sq feet. Approx 22 years old. List price was $99k, I offered $73k all cash , settle in 21 days, and only termite inspections. We did our walk through and the property needs all cosmetic work. New paint, new flooring, and all appliances, plus misc. such as light fixtures, door knobs, switches and etc. Budgeting about $11k

ARV is approx. $139k. or rental at $1200 monthly.

Taxes $1415 yearly

Insurance $552 yearly

If I kept it as a buy and hold, my expenses would be roughly $440 a month and that includes vacancy, cape

x, and maintenance. If I refi the property after 6 months, I'll estimate my mortgage to be about $500 monthly, bringing my cash flow around $260 monthly with no money in the deal.

If I flipped it I would put about 15k in rehab. My max purchase price would be $80k so I would be all in for $95k and can sell it quick at $130k. After all expenses and commissions($10,400) I can potential net $24,600.

What do you think? Thanks!

[Larry Turowski]

@Ciro LoCascio and @Account Closed This is always a topic of debate because the math is somewhere between complicated and impossible.  Investors, myself included, end up with some hand waving justification for one or the other without really proving anything mathematically.

The impossible comes from things you can't really know like cash invested vs amount borrowed, interest rates, appreciation, rent increases, the sale price, your tax rate, whether you can put the proceeds from either a sale or cash flow back to work at the same growth rate, etc.

None of this matters if you have a preference for holding over flipping or vice versa. But if what you want is to have your money work hardest for you then one of the things I think we need to start looking at is internal rate of return (IRR). This is a non-simple formula that puts your gains in terms of yearly interest (growth rate). It doesn't deal with the impossible to know numbers, but is probably our best approximation of the truth.

I don't have an answer for you because I don't have all the numbers and don't want to do  the math, anyway.  But pundits often make a false distinction between being wealthy and being rich, again with hand waving.  What really matters is how fast our net worth is growing, not that we have turned a house into an annuity.

All that said, I'll wave my hands and say I believe that a business model of flipping will make you wealthier / richer than holding.  Maybe I'll actually do the math some day to substantiate my claim.