Would you flip or hold?

[Derk Vander Molen]

I am a newer investor in Milwaukee trying to quit my JOB. I am purchasing a duplex with approximately 30k in immediate equity. I could rent it out at about 20% cap rate. I have some cash available for flipping a house and some private money lenders set up. Minimal repairs to rent or sell. Would you flip it or rent it?

[Marcus Auerbach]

@Derk Vander Molen very easy answer: rent. 

Flipping is much harder than most people think and it's easy to loose money, especially on the first deals. Plus it is a lot more work than you would probably think. Renting is a lot more forgiving financially - over time inflation and mortgage pay down will turn even a bad deal into s profit if you just wait long enough and manage it well. It is also much easier with buy and hold to accumulate wealth than it is with flips. 

If your goal is to generate a million dollars you will probably have to do 50 flips. And then pay income tax on your profit. So you probably need another 20 flips to make up for the tax. To do 70 flips in 5 years its almost one flip a month, so you will have to do at least 4 in parallel and need working capital of at least $400k. That does not even consider that you will need to hire staff to handle that kidn of a volume.

On the other hand if you buy ten rental properties for a total of $2M with $400k down you may "only" get $5000 in cash flow per month but your principal pay down and your appreciation generate real wealth while you sleep.

- buy 10% below fair market value = $200k instant equity on $400k down. By the way, that's 50% ROI right there

- cash flow $60.000 per year or roughly $300.000 in five years - without a rent increase

- with 3% appreciation and principal pay down you reach $1.1M in equity in year 5 (from 400k down)

Before someone shoots me here - these numbers are very rough and just to illustrate the principal - play with the BP calculator for details. So you became a millionair in 5 years for doing some property management, which is not very hard on a nice SFR and can be done on the side, while you go to work (W2 income to live on) and do a few other things you enjoy in life.