I was just hoping to receive individual opinions on whether renting properties; be it single family homes, multi room complexes etc… is superior to flipping properties. Also do you believe it is an easier process to buy rental properties and manage them, than to have to continually be running around looking for foreclosures, pre-foreclosures or REO’s etc. to sell? I am hoping to look for rental properties and rent them out, Is single family the way to go or the more rooms the better? Hoping to look in the Washington D.C area. I understand tenants have needs, but I can deal with this. Where is a good place to look for rental properties? Lis Pendens? Newpaper? I feel that the websites are BS listing foreclosures are mainly BS, and have outdated listings. I’m just wondering if i should start small with buying a multi room place to rent or what the best way to go about starting off in the rental apt. area?
These TV shows make flipping seem like a slam dunk Everyone is bumbling around making tons of mistakes, but most of them come out of it with tons of profit (utilizing calculations which I feel are deceptive in most cases).
I personally hold my properties, with the tenant making my mortgage plus.
My husband just told me to flip a house before the end of the year for tax purposes (he’s an accountant so I will have to find a house to flip that is worth my time). Frankly it would be easier to sell some dog stocks before I could find, rehab and flip a house in three months. Houses in Georgia aren’t selling that fast these days in the retail market – around 90 days of holding once rehab is complete. Holding costs, realtor fees and the taxes don’t really make flipping that attractive to me where I’m investing. There just isn’t that much profit to make it worth my while.
Your decision should be based on your financial goals. Once you’ve determined those, if you come to the conclusion you are going to be a flipper, you’ll need to find an area where flipping is beneficial to you. It’s hard work and not as profitable as all these TV shows make it appear IMHO.
Actually 8500.00 doesn’t sound that bad to me for 2 months work when you started off with bad credit and no money.
Not that I would ever condone these “property ladder” shows, but they usually have an “addition expense” catagory which is assumed toi include holding costs and closing fees.
I feel there are many investors that do one or the other or even both. Many times the will simply find a deal they know to be good, and decide later if they will hold it or not.
Both styles of investing have different potential for gain and risk. I myself abhor the idea of dealing with tenants, but love the process of transforming a pile of dung into a wonderful homestead. There are many that would rather not deal with “hammering your thumb, breathing dust and god knows what else?”
You just need to figure out what type of person are you?
Abs, You have it right. There are only two businesses in real estate, rentals and flipping. Flipping is good money, but you have to find a deal to flip. Since you work at making the property saleable, you have to count the income as ordinary income for tax purposes. With rentals you can buy real estate just below or even at retail prices in most markets in the USA and still make them cash flow. The down side to rentals is time. You have to have a lot of property to make an income that can replace your job. You can flip 4 houses a year and make enough to live pretty nicely on. At 0% down rentals it may take 10 to 20 houses to replace your job. But with rentals, if you have 20 $100k houses after 5 years of tenants making payments for you, you can refinance to take the mortgage payments down and and make a killer income. You can then vacation 2 weeks a month and do makereadys 2 weeks a month.
If you flip you have to be at it pretty constantly to find the deals. My goal is to get the rentals to flow enough to quit my job, and then flip all day long for something to do.
Unless I am reading these posts wrong, no one has even mentioned rehabbing and selling. This type of REI is not flipping. The real long term gains are in rehabbing.
I do about 40 to 50 wholesale (buy and sell) deals a year. If you can average $15,000 or more per deal, then that is a good year.
I also do at least a few major rehabs per year. I only do multi units. If all goes as I planned, both wholesaling and rehabbing will be very successful. I do the rehabs to keep me busy and keep my skills sharp. If you do rehabs right, you can make $100,000 or more per deal.
I believe masoning is correct. From what I understand the real definition of “flipping” is buying the property, possibly mowing the front lawn and selling quickly- as is- for a profit. Rehabbing is a whole different catagory, as you are adding value to the house by doing repairs or adding space.
I have done both. It depends on how well you buy. My favorites are when you can find a home that you can rehab, put cash in your pocket from permanent mortgage, keep equity on your balance sheet by keeping the property and collect a few hundred a month in positive cash flow from rent. One of my recent aquisitions for example. Buy for $70,000. Put $40,000 into major rehab and carrying costs for a few months. Total invested $110,000. Keep property. Appraised for $195,000.00 ARV. ( 75,000 equity) Get mortage for 30 year fixed rate, PITI of $987.00 on $134,000 mortgage. Mortgage money puts $24,000 in your account tax free. now rents for $1,500 month. Which pays down your mortgage every month plus several hundred profit in your account each month ( mostly tax free because of depreciation) I have done this many times. Takes some patience, time, sometimes sweat, but is not very risky if set up right. And will make you truely wealthy over time.
I don’t make fun of any information or methods I hear in real estate anymore. It can all be valuable and work for the right people at the right time, right place and right market timing. I am mostly a buy, fix and hold guy and have done very well. But it requires knowledge, work, money, some risk, etc, etc. But I also personally know people who make a $50,000, $100,000 a deal don’t even know what a screw driver is and only attend meetings and closings and drive around in a fancy car. Makes me feel stupid for working so hard dealing with contractors and tenants, but only sometimes.
I think the reason most but and hold people tend to have more weath is the way they think. They tend to be conservative and know how to manage their money. Most flippers tend to be quick buck type people and can usually find ways to spend those large checks as fast as they make it. They are also involved in riskier deals. They are quick to tell you about the deal they made $50,000 on but don’ like to talk about the ones they lost on.
Very well put PilotBill, I couldn’t agree with you more. I think buying and holding is more of a get wealthy slowly, and less of a get rich quick process. I have to admit, I do find it difficult at times to remain in this mindset, usually when the guy in the fancy car goes whizzing past me! I know in the long run it’s the best thing for me personally, and understand that different approaches work for different people.
I think the only get rich quick process is what they are selling on late night TV. From what I have read and seen so far both avenues require a fair amount of work, knowledge, risk, and luck. I think it comes down to personal preference.
After working too many years in auto collections I really don’t want to hear anymore sob stories. And I don’t like how I become when I have to be the person that collects. I would much rather take a sows ear and turn it into a silk purse. See the quality of a neighborhood improve a smidge and provide someone with a good quality home where once there was nothing but an eyesore.
Not to mention its good for me to get out of my cubicle and off my duff.
Both are considered Real estate investing, but they each fulfill a different set of goals.
I like the idea of doing both. Rental for cash flow income every month and long term payoff investement and rehabing for quicker money in a shorter time but this can be used to fuel more rehab and rental business.
I think in the long run rentals will be worth money overall but then it depends on how much money you have to work with and if you need to build money reserves quicker than normal.
Another thing to keep in mind. When you sell any piece of property that you purchased within 1 year you are gonna end up paying out the butt on taxes…I know in Jersey capital gain tax is 28% when you sell within 365 days. If you sell after the first year you will only get taxed 13%. Any property sold after 2 years is free of tax
Not sure where you’re getting your information from regarding taxes but it’s not entirely correct. For properties that you buy and sell within 1 year you are taxed at your normal tax rate. For properties of 1+ year you’re taxed at the capital gains rate, as you mentioned. However, the statement that after 2 years the gains are tax free is incorrect. The IRS allows you to take a tax free gain on property you occupied (for at least 181 days in a calendar year) that you have owned for at least 2 years. The time table means that it’s only for your primary residence in most cases (there is a mathematical possibility that you could overlap two properties but that’s an unlikely situation in most instances). It also caps out. If you’re single it’s currently tax free up to the first $250,000 in profit and if you’re married it’s tax free for the first $500,000 in profit on the sale of this property.
Investment property is never allowed a tax free capital gain, regardless of the amount of time you own the property.
Since I live in TEXAS and we don’t have a state income tax I will concede that I do not know the ins and outs of more communistic communities that require them. What does seem odd though is that if he’s really only referring to the NJ state tax, that the rate is 28% !!! I mean in Louisiana for instance, the state tax is 4%. Now, Louisiana is poor and mis-managed (I grew up there) but, but, but…it’s also crooked as hell. That being said, if the Carpetbaggers can get 28% for state taxes, I’m sure the legislature in Louisiana would find a way to be closer to a figure like that. I took it as he was referring to the well-oiled-streamlined-highspeed-lowdrag federal tax burden / code.