Author Topic: Thoughts on future appreciation vs. flipping  (Read 1602 times)

GoCubsGo

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Thoughts on future appreciation vs. flipping
« on: May 23, 2013, 09:40:42 AM »
After looking at 100+ properties the past year, I finally found a solid deal and will be closing on it in a couple weeks.  Quick background, my market has been booming the past 2 years with solid appreciation and short market times.  Multiple offers on the majority of REO properties and tons of cash investors.  I'm a realtor and sold 6 properties last year to non-traditional first time real estate investors (eg. accountants, computer programmers etc that wanted to get in on the hot market).  I currently own a SFH rental and my rental rates have gone up 20% in past few years (with multiple applicants each time I've put it out there).

Details- Cash ROI is projected to be 10% after about $20K in repairs, Total ROI is 15%.  All in cost will be about $200K, with the post reno value roughly being $265K.  Mortgage 4.125% @ 20% down.

I've flipped a couple homes in the past, but would like to keep this one.  The short term gain is very tempting and while the 15% ROI is good (in this market), I'm a bit torn whether it's enough to hang on to it.  I then added 2% appreciation going forward (I know that's a slippery slope) and the Total ROI is close to 25%. Sidenote: The cash that I will be using to fund this generally sits around earning 2% as I like to have cash handy for projects like these.  Retirement funds are invested 85% in stocks so I guess this is my diversification.  For some reason I feel a lot more comfortable about owning real property rather than stocks that I feel I have little control over.  Between the two rentals, I will probably be at the limit for how much $ I want tied up. 

My question is whether anyone else has grappled with the rent vs flip dilemma?  Adding in expected appreciation makes it more attractive to hold onto the property but I'm kind of playing with fire by using future appreciation.  Thoughts?

Another Reader

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Re: Thoughts on future appreciation vs. flipping
« Reply #1 on: May 23, 2013, 11:19:33 AM »
The first question I ask myself in this situation is what will I do with the money if I sell and take the short term profit.  If I don't have a good answer, I go back and re-examine holding the property.  The problem with flipping is that it is kind of like musical chairs.  At some point the music stops and everyone is scrambling for a chair.

At $265,000, you won't have that much left after selling expenses and taxes.  I might look at the middle road here - rent it out today with a target price in 2 to 3 years.  If you hit that target, sell and move on.  However, if you spot a couple more deals when you are done with the rehab, then reconsider selling at that point.

Flipping is not a lifetime occupation.  It works some of the time.  Having that rental income source in the background while you are selling properties and flipping houses gives you a cushion when the sales market sours.