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There's risk in renting. Flipping, if you like the margin you get in and get out, and repeat. Keeps your cash liquid for the next deal. When you buy rentals you're capped on cash on hand because it's tied up in the house.
Why would someone buy a house to fix up and sell for a quick buck when they could keep it as a rental and take a slower but steady income, plus any equity capture as any loan principal pays down and values notch up?
The acquisition costs, fix-up costs, closing costs, capital gains tax and risk if anything falls through looks like a short-sighted way to make (in many cases) no more than a General Contractor.
Real wealth is built over time as assets appreciate in value. Rents almost always increase. Real estate is easy to borrow against because of the self-collateralization. How much better does it get? Why would anyone let something so valuable go for a quick hit of cash?
Any thoughts from the flipper crowd?
I am not a flipper, but can tell you that rentals are certainly not what they use to be. Plus with home prices soaring these days, making money off a flip of an undervalued home with X amount of investment, can be profitable.
That said, if there is another housing bubble (or even a big correction that lasts a while) flippers with multiple projects are going on can get their rear ends handed to them, like what happened in 2008.
Back to rentals, many a tenant is not paying rent with the blessing and actual strong-arming by the government.
While I understand the need to keep people somewhere other than the streets during a global pandemic, many are taking advantage by not paying even if they are capable.
Some are not being totally unscrupulous, figuring they need to keep money on hand in case things get worse, they lose their jobs, etc.
However others are just going to walk away from the property when they are evicted with no intention of paying what they owe.
These same people are going to be flooding the rental market when owners are finally allowed to evict them, so beware of the potential deadbeat tenants.
My first time out as a LL was an eye opener. I hired a property management company to handle the LL things. They did a poor job and just churned out fees while turning a blind eye to the damage the tenants were causing. When it was all over they said "Being a LL is a risk and we can't guarantee anything" HA!
I drove around town one day and noticed all the apartment buildings. 16 units, 100 units, even 400 unit mega-complexes. I thought, "Damn, these buildings wouldn't be here if they had shady tenants. They're obviously making money. There are thousands of people living in this town who're paying rent on time.And I can't find one good tenant to put in a single house?".
Since that awakening I've been pretty fearless as a DIY LL. It's just a matter of following rules and procedures. Just like the biggest complexes do to make big $$$ for their investors!
It's even more sobering to know that most managers in a complex are just $18 an hour stiffs with maybe a minor degree in business administration. Many are failed real estate agents who're salvaging a career by going into property management. Some smaller buildings even have "live in" managers who just do it for reduced/free rent.
I think flippers are buying up the houses in the area I am moving to. There is no way these crappy looking houses are selling that quick. I also think Covid has more flippers out there working to make a living where their regular jobs may have been affected.
I think flippers enjoy it like a hobby. A sense of accomplishment making a hovel into a gorgeous home. I can see it. Bim. Bam. Done.
Renting is really tough. Rent not being paid, trashed property, tenant/landlord disputes, courts to evict, involving police, broken pipes, replacing hot water tanks or ovens and dishwashers, flooding, property tax and insurance, and the list goes on.
I've been a landlord. It can be a pain in the ass. I've not done any flipping because I can't do all my own work. But in my opinion it depends on the house, what a person can buy it for, and whether or not you can do your own work.
If someone is desperate to sell and most of the work is cosmetic, it can be worthwhile. Some people might even live in a house while they do the work. I did that with my first house, although it wasn't a planned flip.
My neighbor is a house builder by trade; semi retired now. He has bought and fixed up several houses that he rents out, and occasionally gets one that he flips. But he has a friend with a rental management company. That guy deals with the tenants. The tenants think the owner is just the handyman that comes around everytime they call the management company about something.
When I flip (or did ways back), I am set up to realize my gains sort of short term. So I buy a place I think is at a minimum 40% under market (if fixed up), I spend money bringing it up to standards, then sell. I not only get a bit of a profit, but recover my costs as well.
If I were to rent, it would take some time to recover my costs, and I do not want to realize my gains over such a prolonged time. Additionally, my finances were set up to roll into another flip, and having a home tied up renting, I would not have had the funds to continue flipping.
PNW?? no thanks, mold and dry rot and hidden stuff
Quote:
Originally Posted by tommy64
Why would someone buy a house to fix up and sell for a quick buck when they could keep it as a rental and take a slower but steady income, plus any equity capture as any loan principal pays down and values notch up?
The acquisition costs, fix-up costs, closing costs, capital gains tax and risk if anything falls through looks like a short-sighted way to make (in many cases) no more than a General Contractor.
Real wealth is built over time as assets appreciate in value. Rents almost always increase. Real estate is easy to borrow against because of the self-collateralization. How much better does it get? Why would anyone let something so valuable go for a quick hit of cash?
Any thoughts from the flipper crowd?
My family were landlords back when people paid their rent first. Landlording is not for everyone. Remember Michael Keaton in that movie "The Tenant"? Real life!! Also, reno'inig a house is not TV. Those are actors. It takes time and the surprises are real problems NEVER SHOWN on TV "reality" shows. Like "Counting Cars" and "Rust Valley Restorers" these guys are ACTORS. The headband guy on CC's? His wife made the keep money on owning the buildings. You don't reno, rehab, or rebuilt a house or car in hours or days. It takes a year out of your life, MINIMUM. iNOTHERWORDS, these people don't have a clue.
The NW is a particular trap: lots of old houses (anything before 1980) were often NOT built to code. Municipal won't pass it, realtors won't even LIST the property. Dry rot, foundation work, big big money and you don't see it waltzing through in your tight jeans looking at the bathroom and kitchen surface stuff. Nuff said.
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PNW?? no thanks, mold and dry rot and hidden stuff
