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Old 02-20-2021, 07:49 PM
Status: "hamburger went up again." (set 13 days ago)
 
Location: Scottsdale
2,739 posts, read 2,106,974 times
Reputation: 5157

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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?
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Old 02-20-2021, 08:05 PM
 
Location: Salem, OR
14,987 posts, read 36,867,331 times
Reputation: 15506
Quote:
Originally Posted by tommy64 View Post
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?
So all of the good flippers I know own rentals as well as flips. A decent flipper in my area is currently building a 10 plex. He moved up with his quick hit of cash.
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Old 02-20-2021, 08:23 PM
 
Location: South Park, San Diego
5,892 posts, read 9,252,957 times
Reputation: 11684
I don’t know, a house up the street that Zillow values at $725k and sold for just under $600k is coming on the market after several months of remodeling (no expansion other than into the one car garage) by a developer at an eye-watering $1.8M. It will likely sell within days. That’ll mess up Zillow’s algorithm!

Sounds like a a very nice quick hit of cash to me. Why bother with being a landlord in today’s market of deferred rental payments and eviction moratoriums?
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Old 02-20-2021, 08:49 PM
Status: "hamburger went up again." (set 13 days ago)
 
Location: Scottsdale
2,739 posts, read 2,106,974 times
Reputation: 5157
There are a lot of expenses behind these deals. Hard money is short term @ around 10%, short-term capital gains can be as high as 37%, listing agents take a cut etc. Plus labor/materials have skyrocketed since the Covid.

It's hard to know what it costs to get a flip done and closed, but it seems inefficient and risky. What would these properties be worth in 5-10 years with steady cashflow throughout? Not to mention a fix-up to rent is less cost than trying to hit the top of the market with expensive finishes/upgrades. Plus a property that is kept longer can be tax deferred via 1031.
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Old 02-20-2021, 10:24 PM
 
Location: Phoenix, AZ
4,251 posts, read 2,359,892 times
Reputation: 11493
Quote:
Originally Posted by tommy64 View Post
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?
Because tenants can often be a royal pain in the ass and cost the owner a lot of money when they damage the property and skip out on rent.

I did OK financially having 3 rentals for 20 years and was able to parlay the equity into buying my own house for cash.

But I had a lot of grief along the way and was happy to get out from under.

If I knew then what I know now, I would go the flipping route. I did a lot of my own work on my houses back then. Probably could have made some decent money flipping houses a few times a year without any of the hassle of dealing with tenants.
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Old 02-21-2021, 03:50 AM
 
4,280 posts, read 4,842,049 times
Reputation: 2356
It depends on the area and costs such as home insurance and property taxes. I had rental property in South Fl and it was considered commercial property so the property taxes went up at least 15 percent a year. The cost of commercial insurance got very expensive too. You can't always pass on these costs to a renter. Then when you sell the rental you pay the cap gain tax. I think now I would buy a property that I might retire to at some point. Rent it out, fix it up over the coming years and then move into it.
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Old 02-21-2021, 07:00 AM
 
Location: Morrisville, NC
8,613 posts, read 12,849,452 times
Reputation: 8170
Why does any company even build homes then? I mean, think of how much Lennar could make I’d they just would build all those millions of houses and rent them out instead of selling them? Some people would rather make money now and invest in something else, or the next house or whatever. Some people would rather buy houses to live in than rent. Some people just want to be landlords and have a ton of rental houses. Some people don’t want to buy but want to rent. (Personally unless you’re in a big city that’s crazy IMO). But, bottom line is there are multiple ways to make money and multiple ways to live and people have different comfort levels.
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Old 02-21-2021, 07:09 AM
 
Location: Bloomington IN
7,867 posts, read 10,055,618 times
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Maybe they don't want to be a landlord and deal with the associated risks and headaches. Maybe they would rather get their money and invest it.
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Old 02-21-2021, 07:18 AM
 
8,137 posts, read 5,278,252 times
Reputation: 5916
Quote:
Originally Posted by adjusterjack View Post
Because tenants can often be a royal pain in the ass and cost the owner a lot of money when they damage the property and skip out on rent.

I did OK financially having 3 rentals for 20 years and was able to parlay the equity into buying my own house for cash.

But I had a lot of grief along the way and was happy to get out from under.

If I knew then what I know now, I would go the flipping route. I did a lot of my own work on my houses back then. Probably could have made some decent money flipping houses a few times a year without any of the hassle of dealing with tenants.
This!

I rented a townhouse for 18 months. I would have lost less money leaving it vacant for the 18 months. I renovated it and sold it. Never again
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Old 02-21-2021, 07:18 AM
 
Location: Lake Norman, NC
8,351 posts, read 12,467,844 times
Reputation: 34408
Quote:
Originally Posted by rrah View Post
Maybe they don't want to be a landlord and deal with the associated risks and headaches. Maybe they would rather get their money and invest it.
Especially with todays society leaning towards not paying rent or other obligations because they're strapped (a sad reality), or in some cases because they "don't feel like they have to".
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