fix/flip or hold/rent?

Question

With the current market, tight margins and competition, I'm thinking about a modest move-in ready SFH in a good neighborhood. We'd have to put no money into rehab, could pay cash, and any possible vacant stretches would then be just taxes and utilities. I really didn't want to be a landlord, but a 2 bedroom would at least not attract large families/kids. Any thoughts on this, BP folks?

Jennifer Lee · Answer

you are just like me!!!

cash is king!

its hard but buy what u want, and buy right.

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if u really want to flip then hold out for a good deal. back paddling is not fun with real estate.

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for me my philosophy is. buy hold and flip to financing more buy hold.

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if u pay cash and u can cash flow 1200/mo, you aren't really stuck. you can cash out financing, or get a home line of credit on your primary home.

that's how we paid for 6 homes.

with savings and rent we pay down the HELOC. and when we see a deal, we pay cash from heloc and cash on hand.

Melinda Flores · Answer

I would like to rent out properties I have looked into getting a real estate agent and they will charge a small fee and handle background checks on potential tenants, and handle getting rent payments and evictions if necessary.

Terry Hoefer · Answer

Jennifer-thanks. That gives me more to think about, I like your approach. We have a lot of equity in our own home. Cash from the rental would build, while we wait out the two years for my husband's easy access to banks will be easier. I hate to pay interest if I don't have to. Our own home is a 30 yr fixed at 3%, we've been here for 14 yrs. That's a long time for me, but my husband is fond of our house.

Shanequa J. · Answer

There's many different types of real estate investors. Not all will fit what you want to do. If you don't want to be a landlord, don't be a landlord. Sell every property you get for quick cash.

Jennifer Lee · Answer

Hi Terry

Without numbers, it's hard to advise.

Also what is your objective, saying your don't want to be a landlord... are you thinking of flipping it?

You could hire a property manager if it makes sense to your bottom line.

Joe Villeneuve · Answer

Wow.

First.  Read what both @Jennifer LeeandBarbara G.said.  They are both 100% correct.

Second, there are many that will disagree, and that's fine, but I guarantee that you can't make money flipping if you do your own rehab.  It's an illusion.  To those that say I'm wrong I will tell them you don't know what you don't know.  That isn't meant to say you are somehow "not smart".  If you have nothing to compare your costs to, how do you know you are saving money?

There are many, many reasons for this.  I will leave you with three of the most important ones:

1 - You are a Real Estate Investor.  You make your money investing.  This means, the more investments (properties) you can be working on at once, the more profitable you will be.  If you are physically working on a property...how many can you work on at one time?

2 - If you have other obligations (job, family, etc...) that also take up your time, how long will the project take to complete?  Time is money.

3 - If you are not a pro at this, and you make mistakes (and you will), how does that impact your bottom line?

Remember this:  "Just because you can, doesn't mean you should".

Terry Hoefer · Answer

@Melinda Flores - I would definitely get a manager to handle rentals if I were to have more than one. Thanks

Terry Hoefer · Answer

@ Joe Villeneuve-thanks for your comments. We do work full time, yet we managed to complete a full rehab on a property in 6 weeks. We do some of the work ourselves, but we hire out for the major plumbing electrical, and wood floor refinishing. We've done a lot of tile, paint, installing cabinets, drywall and minor electric plumbing. I figure in a few more years, I will retire from my full time job, and will then have a running start for increasing the number of properties I can do at one time. Then I will be using contractors more extensively. I draw plans, for moving walls, windows, etc. and we've used them for permits in the past. That saves money.

Terry Hoefer · Answer

Barbara-kids are ok-just not a big family of kids, more wear and tear. For a rental, less rehab is my preference. I love to rehab, but then I would rather sell.

Terry Hoefer · Answer

I guess my favorite thing is rehabbing, I've been doing it mentally since I was a kid. I've done it on my own properties, family members', and keep looking around to do more. I finally have some capital to flip without moving all the time (my poor husband). The deals are scarce right now to make the numbers work for a flip, being outbid on three properties so far, I just won't pay more than makes sense, just because I like to rehab. One small rental property shouldn't be a problem to manage, and it's close to where we live. I don't like the idea of having my money tied up in this one property in spite of the minimal expense, but good cash flow.

My husband has been self employed for over twenty years. He does well, but because his senior partner just retired and the business was transferred to my husband's name only, the banks want two years to go by to qualify for financing. Our credit score is excellent, and we have cash, but without the benefit of financing, our options are so limited for the time being. But the idea of our money not earning anything while we wait, makes me think to collect rent would be doing at least something. Another $1200/mo. while we wait sounds like a good idea. I guess I'm really just afraid, if I go ahead, some awesome flip opportunity will come up and I'll have to watch it go by.

fix/flip or hold/rent?

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