What's the point in owning rentals.......

This article evolved as I wrote it. I started jotting down some random thoughts just to help myself analyze rehabs vs rentals. Here is what I found out.....

Let's assume one flip could "potentially" earn you $25k. How many rental properties would you have to own to make $25k in profit? And how long would that take? Yea flipping is active and rentals are "passive".......But you could invest essentially the same amount to start. let's say $20k for the down payment on a 100k rental purchase or $20k on a down payment for a rehab.

The rehab has the potential to bring $10k-$40k in profit. A rental will bring in $100-$300 in cash flow, so at most $3600 a year. Now if the rental was owned free and clear there is a larger amount of cash flow but that isn't until 5-10-15 yrs down the road.

I know there is loan pay down and possible appreciation and tax write offs and you are building wealth .....blah blah blah.....but that takes a long time.

Let's crunch some hypothetical numbers!

One flip a year will bring in $25k (average)

One rental will bring in maybe $2500

10 yrs of flips $250k (one per year)

10yrs of rental cash flow, presuming I bought one new property a year, is ..... $137,500?!?!? (oh WOW! I did the math as I was writing this and that's a lot more than I thought it would be) As I said this article evolved as I wrote it.

So at the end of ten years you will have accumulated about $140k in rental income vs $250k if flipping income... nice! But with rentals you will continue to make $25k annually if you do nothing, whereas once you stop flipping that's it, no more income. And in four more years they are basically equal, but the rentals continue to earn. 

Well, I started off trying to convince myself I should flip instead of hold. However; I now realize what I already knew, that holding is almost as profitable as flipping in the short term (10yrs) and way more so down the line. I just hadn't put pen to paper to see what that might look like! So, I will continue to do both but with a new found focus on the long play!

Some of these numbers are completely arbitrary and can change drastically from flip to flip or from one rental to the next, I used general numbers to help get an idea of what these investing strategies may look like. 

Louisville, KY