Potential BRRRR (or Flip)

[Neel Patel]

Hi everyone! I just picked up a shell property in a booming area in Philadelphia. Original plan was to flip it, then started considering renting because of the area but now, I think the original plan of flipping might be the best route. I want to get feedback on my analysis and thought process on the two options. 

• Purchase Price with closing: $130,000
• Rehab: ~$80,000
• Total all in cash: $210,000
• ARV: $270,000 on average (low-end would be 250k and high-end would be $300k but a house just a block away appraised for $325k recently with lower finishing than what I am planning)

If we flipped the property:

• Closing costs: $21,600
• Net: $36,900

If we refinance and then rent:

• Rent: $1400 (but could be $1600 based on other comps)
• Tax: $100
• Insurance: $200
• All utilities: tenant responsibility
• Property Management (10%): $140 (we would self-manage but I like to build this number in my calculations)
• Vacancy (5%): $70
• Repairs (5%): $70
• CapEx (5%): $70
• Net: $750

With only a net of $750, pulling out our cash via refinance the property would put us in a negative cashflow. Our loan payments would be roughly $1100+  a 30-year mortgage with a 5.5% rate. 

Are there any flaws in my numbers? Anything I should be considering? Anything I am missing? I feel like we'd walk away with more money by flipping. Open to all feedback. 

[Christopher Phillips]

@Neel Patel

Your numbers for repairs and CapEx are a little low. Even the best tenants will break things.

Food for thought...

If you are going to rent it out, your rehab numbers would be lower since you wouldn't be putting in the best finishes (for the same reasons as above).

Doing a flip will kill you on taxes and eat into your profits due to the short term gains. A rental allows you to tap equity and repeat. You get to write off depreciation every year. And when you sell it down the road you can do a 1031 exchange to avoid taxes on gains while you roll it into somewhere else.