Flip vs. Rent

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How to use the Flip vs. Rent

1
Enter the deal
The current value, everything you've invested, and selling costs.
2
Estimate the rental
Market rent, and operating costs as a share of rent.
3
Enter refinance terms
Loan-to-value and rate for the long-term loan.
4
Set how long you'd hold
And how fast you think the home's value will rise. Try a lower number too.

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Worked example

A finished flip is worth $380,000, and the investor has $332,000 in it. Selling now, after 8% costs, earns about $17,600.

As a rental at $2,600 a month with 40% operating costs, refinanced at 75% of value and 7.5%, the house would lose about $5,200 a year in cash flow. With 3% yearly appreciation over five years, the rental still comes out about $45,000 ahead, but almost all of that comes from appreciation and loan paydown.

At 0% appreciation, selling now comes out ahead. Test that number before you decide.

The formula

Flip profit     = ARV × (1 − Selling %) − Total invested
Refi loan       = ARV × LTV
Cash flow / yr  = Rent × 12 × (1 − Operating %) − Loan payment × 12
Rental profit   = Cash flow × Years + Future value × (1 − Selling %) − Loan balance − Cash left in

Common mistakes

Assuming appreciation. Prices can stay flat or fall. Run the numbers at 0%.
Forgetting the refinance test. The DSCR lender may not lend 75% of value at your rent. Check with the DSCR Refinance Sizer.
Comparing unequal timing. Flip profit arrives now and can go into the next deal.

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