Flipper and a Landlord? Why Both…

Big checks, quick sales and glamorous before and after photos is something everyone can get excited about.  People who aren’t in the business have tons of questions for me about this process and everyone is ready to do it themselves one day soon!

On the other hand, when I tell them I have rental houses, they usually tell me how they couldn’t handle a midnight phone call to fix a toilet (I still haven’t gone out to one of those).

Fortunately or unfortunately I live in both worlds and really like the multi-pronged approach.  The buy-sell business generates big chunks of capital and requires a lot of continuous effort.  The landlord side is an investment in the future, it does generate some short-term capital (cash-flow) but its primary purpose is future value (amortization and appreciation).

Running the two businesses together gives you the following synergies:

  1. Deal Flow
    Some make sense to resell, some make sense to rent and some make sense for both.  If you are already looking at a lot of deals you might be passing on stuff you should be keeping.
  2. Consistent Income
    The buy-sell business income is very lumpy.  Landlording can bring in some cash-flow during your slow months to keep the ship rolling.
  3. Tax Advantages
    Flipping doesn’t really give you any tax benefits.  Buying rentals gives you depreciation, passive gains and a lot of good stuff.  Build this side of your income (that is why the rich pay so little tax).
  4. Pulse on the Market
    The market is ever changing.  The more active you are in it, the more you get a feel for what is going on.  Are buyers getting aggressive?  Are renters getting aggressive?  Is a ton of inventory starting to come out?  This is stuff you need to know!
  5. Gives you Focus
    I have clear goals and most of them are on the landlording side of the business.  A lot of capital is required to make these happen and most of that is going to come from the buy-sell side.  I know what I need to do to hit my goals and that is what keeps me excited to go to work every day.

Words of Caution

Don’t start buying rentals until you’re ready.  Over our first 15 deals we didn’t even talk about doing any rental properties, we needed to build up a “war chest” of cash for our business cash-flow before we could consider diverting profits to rentals.  Things always go wrong and they’re expensive to fix.

Once you get in the rental game: buy rentals with equity from day 1.  Flippers are trained to analyze a deal that can make a profit, I advocate for that same criteria to be added to the buy-and-hold model.  Just because a property can cash-flow doesn’t mean you should pay market value.

And lastly, don’t build a portfolio of failed flips.  Every so often a couple die-hard buy-sell guys tell me of a rental they kept that doesn’t really make sense.  After some digging I realize their intention was to sell it for a profit but it didn’t work out.  Rather than losing 5,000 or 10,000 they decide to keep it and usually have too much $$$ tied up in it or a big negative cash-flow every month.  Just sell it, lose money and move on.

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One Response to “ Flipper and a Landlord? Why Both… ”

  1. Bilgefisher says:

    Steve,

    Great tips on having a war chest. Worst case scenarios happen more often than anyone would like to admit.

    Those first few rentals are the hardest to deal with ups and downs. The bumps are a bit smoother the more rentals I have to offset big ticket repairs.

    Jason

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