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David: Alright guys, welcome back to another episode of the discount property investor podcast. I am your host David Dodge and today we are on episode 299 and this is going to be all about should I flip it or should I rent it out? And this is really gonna- it's gonna- it's gonna matter to you within your market, within the current state of your business. So both flipping a property or keeping it and renting it out are both great options but depending on what makes the most sense for you at the current time in your current business and the current market, that is going to be the answer. What makes the most sense? So if you were to flip it, there's a couple different scenarios here, it's not just always the same thing. You could lock a property up and then you could wholesale that property, that'd be a form of flipping it. You could lock it up and actually close on it and then list it on the MLS and wholetail it, that's also flipping the property. You could buy it, maybe close on it, maybe not, contract it and put it on the MLS without any repairs, another way to do it if you didn't buy it, right? You could buy it and actually fix it up and shoot to have the highest retail value you could get by listing it with an agent on the MLS, another way to go about flipping it, right? So flipping it isn't always just one option, there's lots of different ways to flip it. You may want to do some work, you may not. You may want to wholesale it, you may want to sell it on a lease option or something along those lines and you know, that's still kind of flipping it, right? The other option is to rent it out, and there's pros and cons with renting it out. You may have to fix the property up first before you're able to rent it out, so think about the number of repairs that a property might need and does it make sense? Personally, I don't like to buy properties to rent out that need more than 25 or 30 thousand dollars worth of work. Those are typically properties that we're going to buy and we're going to put that amount of work into and then we're going to sell them for full retail and get as much value out of them as we possibly can or we're going to wholesale those properties. But for me, if the property needs less than $30,000 worth of work, in some cases 40 but mostly 30, then it may make for a good rental property. Also what's going to make for a good rental property is going to be the price you pay in comparison to the amount that you're going to be able to rent it out for. So me personally, I like to buy properties that fall within the 1% rule for rental properties. Keep it simple. So a 1% property would be- let's say a property rents for $1300 a month, 1300, I would like that property, I would like to be able to be all in for that property so the purchase and the repairs and any CapEx that will be needed within the next 5 to 10 years, all I want to be included in my all in number. And in this case, if the property will rent for 1300 a month, my all in number needs to be around 130,000 or less, again that's all in, that's the amount to purchase it, that's the amount to fix it up and get it rented, and that should also include any major CapEx. What is CapEx? Well capital expenditures is CapEx and that's big ticket items like HVAC's or roofs or whole house windows or anything that's going to be major like a kitchen, right? If you know that you're going to be able to get 3 to 5 years out of an HVAC, well that's great but in 3 to 5 years you're gonna have to go spend 4 grand, 5 grand in some cases to replace that HVAC. So you wanna make sure that your capital expenditures are included in the repairs or on top of the repairs because you may not need to do the HVAC or the roof today to get it rented but you also don't wanna, you know, have these additional expenses within a short period of time coming and not factor these in. They need to be considered. So should I flip it or rent it out? Again guys, this is really going to determine and depend 100% on what makes the most sense for you. If you don't have any rentals and you want rentals then maybe it makes really good sense, maybe you have rentals already and you want more, great but be aware that whenever you keep a property as a rental you're also not going to be able to cash a check for 15 or 20 or 30 thousand by wholesaling, by fixing it up and flipping it, right? Typically whenever we are going after properties to keep and to rent, these are properties that we're going to use the equity in those properties to position ourselves in them. So if I can get 20% equity or 20 or 30 thousand in equity, I'm going to use that equity and take it to a bank and then not have to have any money out of pocket in the deal. The negative side of that, the flip side of that is that I don't get to walk with 15 or 20 thousand. Now when you rent it, you get to keep it and you get paid every month assuming it's rented, which is great, you may want the cash flow but if it makes more sense for you and your business at the current time to build your capital reserves then it might make more sense to flip it via wholesale or wholetail or even fix and flip. So again, there are pros and cons to both, there aren't really an- this is not really an exact science on should I flip or should I rent? It really depends on what makes the most sense for you and your business at the current time. It also may make a difference on the current market that you're in, and if you're in a market that has extremely expensive property values and you aren't gonna be able to achieve the 1% rule then it may not make the most sense for you to keep that as a rental. It may make more sense to turn around and flip that property. So keep it simple, do not overthink this. I get asked this a lot, should I flip it? Should I rent it? Personally, I like to do both and I like to do a mix of both and there's reasons for that. When I'm keeping rentals, yes I am adding small amounts of cash flow with every rental that I add every month and the cashflow is great however I'm also adding wealth and I think this is often overlooked but if I'm able to capture 20 or 30 thousand dollars worth of equity, that's not realized income and you don't have to pay taxes when you capture wealth. You only have to pay taxes when you realize income. So I really like rentals personally, in fact I have over 90 doors as of this episode because I'm able to capture wealth without paying tax on it and I love doing that. Now I also like to flip, fix up and flip, wholesale, wholetail, you name it, because I get income. Now that income is going to be realized as soon as I earn it and I'm going to owe taxes on it. So there's pros and cons but without income, how are you going to eat? How are you gonna put gas in your car? How are you going to pay your own mortgage and your own electric bill and cover the costs of operating your business and your marketing expenses and employees, so on and so forth. So you have to find a happy medium with what you choose to keep as rentals and create wealth and avoid paying taxes, and create a stream of income that's long term or create money now, typically larger amounts of it and when I say now I mean quicker, right? Because you're essentially going to be selling the property regardless of what exit strategy you used to flip it and you are going to get money now which is gonna help you live and it's gonna help you operate, it's gonna help fund marketing in your business. So take a step back for a minute on every deal that you look at and determine hey is this deal a great deal to be flipped? Is it a better deal to keep and hold as a rental? Do I need income right now or is my goal to build wealth? Am I looking to build onto my cash flow? Do I need to add some depreciation to my income? I mean, these are all questions that you're gonna wanna ask yourself. What's the current value of the market? In this property, what are the repairs? Can I get a loan to buy it as a rental right now? If you're not lendable and bankable then owning it as a rental might not be a good option for you unless you're able to buy it with some creative financing, subject 2, lease option on the buy side, something along those lines. So there are factors that you need to consider when you are going to be factoring in if you should flip a property or if you should keep it and own it as a rental. I suggest if you were getting started, you flip it, learn to wholesale because there's a ton of skills that we all can learn by talking to sellers, following up, even talking to buyers, sending offers on properties, getting them under contract, gaining control. I mean these are the activities that real estate investors are doing, these are the activities that I do every day and the reason I like to start with flipping or wholesaling, wholesaling specifically you don't need a lot of money to buy the property, you just need money and time to do marketing to find deals but once you find deals, you can use contracts to gain control and you can flip those deals. I also really like wholesaling because once you get good at wholesaling, you have essentially gotten really good at the marketing business which means that you're also probably really good at finding deals and locking those deals up and then what you can do which is what I do is I cherry pick the very best deals and I keep those as rentals, but I also maintain a healthy wholesaling business and flipping business which are actually two separate businesses, one to wholesale and one to buy and fix up and then resell. Reason being is I have to feed myself and I have to be able to charge my car or put gas in it and pay my mortgage and pay for this office that I'm recording this podcast in and my employees and the marketing. You can't keep everything unless you have really really deep pockets and I don't know about you but I personally don't have massively deep pockets, I'm doing okay, doing pretty good but I don't have crazy deep pockets so at this point in time, you know I would say on a good month, 51% of the deals that come in, we will do our best to keep and if we are running low on money or we overestimate some rehabs or projects are taking longer than we need then we may easily pivot in as many as 2/3 of the deals that come in, we may then decide to flip. So we're constantly going back and forth on should we keep it and flip it or should we keep it and rent it, right? Or just wholesale it, there's so many different options but here's the lesson, should I flip it or rent it out was the question and that's the topic of this podcast but here is the question: what makes the most sense for you in your current state? Because I would encourage everybody to get into the rental business because it's a way to create lots of wealth, it's a way to avoid paying taxes, it's a way to create cashflow to where you can literally get paid in your sleep, however it's a slow business, being a landlord doesn't make you rich overnight. You can use that equity that you've captured and leverage against it, there are advantages. You also can use these properties that you own and you can use depreciation which is a tax thing that basically creates a phantom expense and you can use your depreciation to offset other income if you are a full time real estate investor. If you are not a full time real estate investor, you may not be able to offset other income but you can offset the income on that particular property with that depreciation. So there are so many different pros and cons for each but what I like to do and what I encourage and teach all of my students and anybody and everybody is start with wholesaling, at least start with direct to seller marketing because that's where you're going to find the deals, right? Regardless of what you are going to do as a real estate investor, even if your first day of being a real estate investor is today or if you plan on that being in a month or two from now. The main thing is you are not going to be able to have great success if you're not good at finding deals, that is where it all starts. So if you wanna flip it or if you want to rent it or if you want to wholesale it or wholetail it or lease option it or whatever, right? None of those things are really going to be an option to you if you don't have a deal so that's really where it starts, you have to find deals and then check this out, the cool part: if you find a deal, now it's very very easy to decide what you wanna do. Do I wanna go make 15 or 20 thousand on a quick wholesale? Or 40 or 50 thousand on a 3 or 4 or 5 month fix and flip? Or do I want to try to capture 20 or 30 thousand dollars worth of equity and not pay tax on that money and create a long-term rental? If you find a deal, all of these options now become available to you. But without the deal, you do not have all of these options and wholesaling it and flipping it may not even work if it's not a deal. You may squeeze out a small profit, you might not and you have to back out. And if you're not getting a deal then that means that you're going to be buying a rental and you're going to be putting money into it. You're not gonna be able to use any of the equity that you capture if you don't have equity and you didn't get a deal. So learn right here right now that deal finding is the most important part of real estate investing, start there and then once you start stumbling across deals and you find them and you get good at talking to sellers and you're having fun and you're sending offers and you're doing deals, and then if you decide you want to start to hold and rent and capture equity and pay less tax and create wealth and a stream of cash flow, I would highly recommend you do so but do so by cherry picking the deals that you are sourcing from your direct to seller marketing. So don't overthink it guys. Thanks for listening, keeping it short today. Signing off.

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