Re: Keep a property or flip it? need help - Posted by Brian_wa
Posted by Brian_wa on July 19, 2007 at 10:25:53:
In general, when you have free, clear cash available, you do tend to spend more than if the cash is borrowed with interest. Furthermore, when he flipped the properties, he had to sell them at low prices.
For instance, he picked up a house for 230k. If he spent about 30k or so that house would have been worth 350k. However, he decided to wholesale it for 270k and netted about 30k in the process. Well, out of that 30k, he had to pay about 10k in taxes. This left him with about 20k to 22k.
As for me, I bought a similar house at the same price. I spent 30k to fix it up and then quickly refinanced at 300k. I got out 40k and still in the house at 300k while it’s worth 350k. I then rented the house out at a low rental rate so that I could pick the best tenant possible. My negative cash flow would be around $300 to $400 a month but that’s only $4800 negative a year.
If the housing market appreciates 7% a year, my house would be worth $374k in one year.
If it doesn’t appreciate, I basically got the house for $304,800 due to the negative cashflow. Even if I sell it, I still can make about 20k in addition to the 40k that I already gotten.
If the housing market depreciates a little, well I still can sell it quickly and still be no worse off.
The thing is that the housing market in the Seattle area has been appreciating 15% or so. My friend has missed all that appreciation because he wanted the 30k profit up front.