To flip...or NOT to flip?!

Well it seems i may have a deal in the making. if everything goes through smoothly i will be faced with a difficult decision. should i flip the property (as originally planned) or shouldn’t i.

Here are the options i see so far along with the pros and cons of each:

Keep the house and live in it

  • It will be nice to live in my own place and not my parents
  • After two years I can sell for profit w/out losing a huge chunk to capital gains
  • I will be making monthly payments which makes me more dependent on my day job (which I’d like to leave ASAP)
  • All my money will be tied up making it tough to do other deals in the same fashion I’ve done this one

Keep the house to live in and rent out the other rooms

  • It will be nice to live in and possibly with some friends or other fun (hopefully) people
  • After two years I can sell for profit w/out losing a huge chunk to capital gains
  • Monthly payments will be cheaper (maybe break even?)
  • I’ll have to deal with landlording issues
  • I’d have to convert it to rental property (correct?)

Keep the house and rent it out w/out living there

  • Great possibility of positive cash flow
  • Great way to start building my wealth
  • I’ll have to deal with landlording issues or hire a property manager which might yield negative cash flow
  • I’ll have to convert it to rental property (correct?)

Flip the property

  • Can make some quick money
  • Easier to move on to other deals having more cash on hand
  • Will have to page a large chunk of capital gains (this is the major one that bothers me)
  • Won’t be building future wealth

Now, most of this is everyone on this board already knows. I’m just stating my viewpoints and if anyone would like to add or modify any that I have selected please do!

The purpose of this post is because I originally had the mindset of flipping the property. I’m not comfortable with giving away the 30% (or more…I’m not sure of the exact rate). I know there is a 1031 exchange, but I’m not banking on this considering this is my first deal and another property might not be lined up in the anticipated time. I’d like to here some suggestions regarding my scenario…maybe there are methods which I can minimize the capital gains tax or other things I’ve missed along the way.

I know it’s a long post but your feedback is most helpful!


Whatever you do don’t rent to friends as you mentioned above. Money and friends don’t mix, you end up with only one of them in the end (or possibly neither). :cry:

I agree with this. NEVER do business with family or friends. They may take advantage of you for one when the rent is due. Will you be able to evict a friend or family member for non payment? Don’t even go there.

Regarding the deal. Will you make a decent cash flow per month. It would be a great way to build wealth by holding. Just think how much you’ll make someday when that property is paid off along with all the others you have accumulated throught the years. You also will have all that equity. We became multi millionaires due to our invest and holding the properties in the last 10 years. We found GREAt opportunities. You could read my blogs below for more details.

On the other hand if you flip I would say 1031 which I have never done. The taxes are one reason we still hold our properties. I know there are many people out there very wealthy from flipping.

Good luck on what ever you decide :slight_smile:

You said

“All my money will be tied up making it tough to do other deals in the same fashion I’ve done this one”

Use your money for Rehabs. If it is just paint and carpet. You still need cash. Hard money is not cheep.
Use your cash to boost up your credit score.

Do Sub2 L/O to generate deprecation for tax reasons.

Always try and have some cash on hand.


thanks for the replies guys.

so it looks like you’re recommending flipping the property? :slight_smile:

I’ve been leaning towards the idea of living in it, while renting out the other two rooms to nonfriends. If I choose this route, what else is involved. Do I have to convert it to rental property even though I’m living there. Do I have to register it with anyone? Is it a big deal if I keep it as is and collect rent under the table?

where is the property?
do you think it will increase in value in 2 yrs or decrease?

Most 1031 Intermediaries will tell you that you need to own the property for 1 full year before doing a 1031 Exchange. 1031’s are not for flipping.

If you are living at home now and thinking about having friends for roommates…are you sure that your tax hit will be 30% on ordinary income?

Your idea of keeping it and taking rent “under the table” is not a good one. That is tax evasion. Courts can fine you and put you in jail.

Absolutely Steve, great point!

Always run ANY business you have honestly (not that you wouldn’t). Number one reason -It’s what God wants you to do. Number 2, America is the greatest country on earth and You should be proud to contribute your fair share. Number 3, it’s not worth the risk. You will someday be proud to say, “I did it all myself and never cheated or lied to anyone to get there”.


nvrmind, that’s a tough question. the market here has leveled off a bit. it could go down a little or it could continue to be level for that amount of time. i’m too new to RE to make that kind of judgement call.

steve smith, no i’m not sure of the amount of tax i will have to pay. how can i find out?

diane, i agree i guess i’m just looking for the best option availablet to me.

i’m in a bind here because you only have first time home buyer’s benefits once. since this is my first home, i’m debating if i will try to utilize them.

if i choose to live in the home and rent out the other two rooms, what is the process i must go through?
-must it be converted to rental propert if i’m living there? if yes, what is the process? what are the costs?
-what are the advantages and disadvantages?

thanks all!

To estimate the tax impact, just get online and print 2005 tax forms from the IRS website. Fill in the blanks using your best estimations for 2006. That is a good estimate of your taxes. Change numbers to see how changes in income will effect tax liability with various scenarios.

hello. im also considering buying a house and renting the rooms out. i found a cheap 5 bed 2 bath house that needs work. with 4 of the rooms rented for 100 per week ill be making 1733 per month (400*4 1/3) which is more than i currently make at my day job! im sure that i will be able to pay my mortgages down quickly with that extra cash. :wink:


1733 is the monthly gross. Be sure to work your actual #'s. Will you pay water, trash, electric or gas. What about the gardening. Don’t forget to also consider mortgage, tax, insurance & maintenance.

You also said it needs work. Plumbing? Could be costly unless you do it yourself same with electrical. Paining or carpeting too. This all adds up to net cash flow.

Figure this out and see what your net profits might be. You might be surprised at the difference.


dont worry, im doing the work myself, and even so, i can get it at a great price, prob 30-40k. yeah 1733 is gross, but 733 will most likely cover the expenses and then some, so ill have an extra 1000 to play with. in case youre wondering, i wont be claiming that income o:)

That is GREAT that you will do most of the work yourself. Being handy in this business pays off nicely.

Will you rent out the 5th bedroom too?

AND last but NOT least
Shame shame on not claiming the income ;-/

naa, im gonna live in one of the bedrooms. itll be cheaper than living alone.

Your going to live with your tenants ? :anon:

Tax evasion is like all-in bluffs in a poker tournament. It works every time except the last one. You realize that you are talking about a felony, right?

you can be roomies with Richard Hatch …

have you guys ever had roommates? and if so, did you claim their income? ive never met anyone who has, honestly.

Just because you never met anyone who has, doesn’t mean YOU have to be one of them!

Why don’t you set an example for these other people?

Do you think God will bless those who lie and cheat? Besides, America is the greatest country on Earth and you should be proud to support it. Plus we need the money - we’re fighting a war on terror!