Is it Better to Fix and Flip Houses or Buy and Hold Rental Properties?

I complete 20 to 30 fix and flips every year, and I also own 20 long-term rental properties. I have certain guidelines I use to determine if I will flip a house, or hold it as a rental property. There are many factors I take into account, but I have much stricter criteria for my rentals than I do my fix and flips. I think you can flip houses in just about any market although you will need more money to flip when housing prices are high. It is harder to find great rentals in every market because rents tend not to keep up with home prices when values are high.

How has my market changed for flips and rentals?

I first wrote this article just after purchasing my 7th long-term rental property. I bought this home in April of 2013, I paid $113,000 for it, and I estimated the ARV (after repaired value) to be $160,000 to $165,000. I thought the home would rent for $1,300 a month after we fixed it up. This article will discuss this particular property, and although I could have flipped this house, why I kept it as a rental. I have bought many more rentals and flipped many houses since then.

This same property is worth close to $300,000 in 2018. It rents for $1,600 a month and would not make a good rental. This shows how different markets and price points can affect how well a rental property performs. I stopped buying rentals in my market because prices increased so much and rents did not keep up. I have kept flipping houses because the profit margins are still there on the flips. This article assumes you are in a market where there are good rental properties.

Should you buy a rental or a flip for your first investment property?

Will fix and flips or long-term rentals make more money?

There is plenty of profit potential to flip rental property number 7, but I am choosing to keep it as a long-term rental. I do many fix and flips, and they are a large part of my income, but income alone will not make me wealthy. Long-term rental properties are what I am counting on to make me wealthy because they offer passive income. Here is an article that discusses how much money you can make with rental properties and another article that discusses how much money you can make with fix and flips.

What are the basics of fix and flipping?

Fixing and flipping, can be a great source of income for real estate investors. I use income from my fix and flips to help fund the purchase of my long-term rentals. I describe a fix and flip and I am working on in this article; fix and flip case study #1. Basically a fix and flip is a home that an investor buys, fixes up, and sells as quickly as possible for a profit. Great fix and flip properties are not easy to find, and neither are great rentals.   

The biggest challenge when flipping a house, is finding a property cheap enough to make money. Our market is improving every day, and owner-occupied buyers are having trouble finding great deals. It is even tougher for investors to find a property cheap enough to flip. It is not just the repair costs you have to figure when buying a flip, but carrying costs, selling costs and opportunity costs.

Check out my ultimate guide to fix and flipping homes.


What are the financing costs of a fix and flip compared to a rental property?

If you don’t have the cash to buy a fix and flip, short-term financing can be expensive. Average hard money-lenders may charge 15% interest plus 4% upfront points on the purchase price of a home. It is much easier and cheaper to get long-term financing on a rental property than a fix and flip. The banks like long-term loans because they will be receiving interest for years. With fix and flips, the banks will not be getting paid interest for nearly as long as a long-term rental, so they charge more interest and fees.

There are other ways to finance a flip with bank loans or private money that can be cheaper.

You can usually finance a rental property for less than 6% and one point on a long-term loan.

What repairs need done on a fix and flip versus a rental property?

Fix and flips must have top-notch repairs to get top dollar. Renters can be much less picky about homes because they aren’t tied down to the house. Renters aren’t worried about furnaces, roofs, plumbing and the bones of the house because if anything breaks they aren’t responsible. On a flip, the buyers are paying a lot of money for a house they will own for years. They will get an inspection to make sure everything works properly and was repaired right. By no means am I suggesting a landlord should skimp on repairs, but there are certain things that may not need to be repaired right away on a rental, that will need to be repaired on a flip. Here is an article that details my repair strategy on a flip versus a rental.

What are the holding costs on a fix and flip versus a long-term rental?

Holding costs are more on a fix and flip because it usually takes longer to sell a home than it does to rent a home. If you rent a home, many times a renter is ready to move in immediately and will pay you rent and the deposit right away. If you are selling the home, it may take a month or two before an acceptable offer comes in, and then you have to wait for the new buyer to get their loan, complete inspections, etc. It can easily take three months or more for the flip to sell after it is repaired and put on the market. Every day that home sits vacant, the owner is paying interest to the bank or hard money-lender and losing profits.

What are the costs to flip a house?

What are the costs associated with a fix and flip versus a rental property?

There are many more costs in general associated with a flip versus a rental. When selling a home, you have to pay a real estate commission to the agents selling it for you. We often pay 3% commission to other agents who sell our homes. We don’t have to pay a listing commission because we are Realtors, but a non-Realtor would have to pay that as well. You have to pay title insurance, recording fees, company closing fees and sometimes buyer closing costs, which can be another 3 percent of the selling price (all commissions are negotiable). Here is a more detailed article that describes how much it costs to sell a home.

After all is said and done, it may cost 10% or more of the selling price to sell a fix and flip. If I keep the home as a long-term rental, I am not getting the instant profit of a flip, but I am also not giving up that 10 percent.

Long-term income from a rental property vs. the instant profit of a flip

With a long-term rental, I am going to keep receiving monthly cash flow as long as I own the home. I can also refinance the home after I have owned it a year and take cash out. The longer I own the home, the better chance I have of the home appreciating. I have the opportunity for rents to go up, and the mortgage will decrease the longer I own the home. If I can put off the instant gratification of the income from a flip, I will make much more in the long run from a rental.

Fix and flip profit vs buy and hold income with rental property number 7

If I were to flip long-term rental number 7, here is my profit potential. I use rounded off numbers to make the math simple and remember I am a Realtor so I have fewer costs. I will even assume we are paying cash on the flip to make it even easier.

Repair costs                                                                                                 $15,000

Utilities, insurance, taxes while repairing and selling                        $2,000

Real estate commission on $160,000 selling price                             $4,800

Title insurance, closing fees, recording fees                                         $1,500

Buyers closing costs of 3%                                                                        $4,800

Total costs                                                                                                    $28,100     

Selling price $160,000 minus $113,000                                                $47,000

Profit                                                                                                       $19,000    

A $19,000 profit is not bad, but remember that is with no loan costs, which would add at least $5,000 after paying interest and points. The figures also only include 3% for commissions because I am a Realtor.

If I were to hold rental property number 7 instead, my costs will be much different. Many of these figures are taken from my detailed post on rental property number 7 so I won’t rehash them. I will have about $34,500 cash into the home and $500 a month cash flow after it is rented. That is $6,000 a year in income and it would take just over three years for me to make the money back I would have made on the flip. I still have all the equity in the home I had with the flip, and I am paying down my mortgage every month as well. I also don’t have to pay as much taxes with the rental property because I can depreciate the home. With the flip, I would have to pay short-term capital gains taxes, which is taxed the same as ordinary income.

Here is a great article on the tax advantages of rental properties.

How do I choose whether to fix and flip or buy and hold a house?

Even though I think it makes more sense to buy and hold properties for long-term wealth, I still fix and flip homes. There are some homes that work great as fix and flips, and some homes that work better as rentals. The biggest reason I like long-term rental properties is the cash flow. Many properties will provide great cash flow, but not very much income if I were to flip the homes. Likewise, many fix and flips can provide great income if repaired and sold, but not much cash flow if rented. The area, bedroom count, cost of the home all must be taken into consideration on whether the house will be a better fix and flip or buy and hold rental. Here is a much more detailed article on how I decide whether to fix and flip or buy and hold a rental property.

For more information on how to fix and flips homes including how to find properties, how to finance them, how to repair them and how to make the most money fix and flipping, check out my new book Fix and Flip Your Way to Financial Freedom. The book is available at Amazon as a 171 eBook or in paperback as well!


My plan is to hold this property for the long-term. I will keep bringing in more income every year from the property as it appreciates and the mortgage gets paid down. With enough long-term rental properties, the income becomes very significant. With the flip, I have the $19,000 profit before taxes and that is all. I have to keep finding more properties, fix them up and sell them to make another profit. But the rental is a cash-cow continuing to produce every year.

I fix and flip about ten houses a year and use much of that income to buy rental properties. When I flip houses, I have much less strict criteria for properties. I am not searching for a very specific place for four or five bedroom homes, built in the last 40 years. With flips, I am looking for any house that will give me a good profit margin, preferably at least 20% of the final selling price. Most of the flips I buy do not have the rental potential to create the cash flow I need.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon bestseller.

23 thoughts on “Is it Better to Fix and Flip Houses or Buy and Hold Rental Properties?”

  1. Hi Mark,
    I would love to get into the business, just takes money to make money. Any interest in partnering on some properties in NY,NJ,PA Areas? Teach me your ways so I can flourish. 🙂 I know I have what it takes and the right resources.

  2. Hi Mark thank so much for all this information,I have 7 properties that I brought cash,I rented 3 of them.I have 1 that I live on it and the others 3 I didn’t fix it yet,I have the curiosity if fix in flip is it better then rent to hold,but now that I read all this I think that its better for me to rent then fix and flip cause I have not much experience in business.I would like that you answer me.

  3. Have you ever done a rent to own? We’re currently renovating a house and trying to decide if we should keep it and rent it, or flip it. The realtor that sold it to us stopped by while we were renovating and said he has a couple that are interested in the house and using the rent to own option. Our potential profit is around $35,000.

    • I have never done rent to own yet. The problem I have with it is the real estate commission frowns upon it and most real estate lawsuits involve rent to own

  4. Hi Mark,

    I just discovered your website and all the info you provide is very helpful. thank you..

    I am about to change jobs and I’m considering cashing out my 401K to use for the purchase of a property. I should have about 50K after the 10% penalty and setting aside 35% for taxes.

    First, do you think that is a smart plan? And second, do you think my first property should be a long term rental or fix & flip? And third, what are your thoughts on a duplex or 3 unit building instead of single family?



    • Thank you Chris, I would run the numbers to see how much money you would be making on rentals or flips in your area to see if it is worth cashing out. There are some big penalites. I would also run the numbers on properties in your area to see which are better SFR or multi.

    • Hi Chris, I feel qualified to mention this to you because I do this and my wife is a CPA. Unless you already found this out, do not cash in your 401K, roll it into a self directed IRA with check book authority. If you do this you will not pay the 10% penalty nor taxes. Also you may be able to borrow against you 401K or in other words take some of the proceeds and return them without penalty subject to your 401K administrator rules. Assuming you can purchase the home for $50,000 then sell it, none of the income you make from the flip is taxable (no 35% in taxes). The tax is only due and payable when you retire and start taking the money out and based on when you take it out. Better yet if you can flip within a Roth-Ira you never pay taxes NO MATTER HOW MUCH THE FLIP BRINGS IN, IT IS ALL TAX FREE FOREVER! In fact anyone that is not flipping within a self-directed IRA is losing their shirt to taxes, because you pay the tax as ordinary income. You may have already found some of this information out, but flipping houses and being taxed as ordinary income will leave you with the smallest return on your investment. Don’t work hard . . . . . work smart. Michael Hickmott EquaTrust Properties.

      • Good information Michael!
        There are drawbacks to flipping in a retirement account. Mainly you can’t touch that money for so long without tax penalties. I imagine it is also much more difficult to use financing to purchase flips in an IRA which would limit the amount of flips you can do. If I can flip three houses with financing to every one without my return will be much higher even factoring in taxes and I have that money to use for other things if I want too.

  5. Hi Mark, Great article!!

    I’m trying to buy my first house either to fix it and flip it or holding it for long term. I plan to get a loan in order to do this, actually I have it approved already, but happens that renting the house won’t give me any cash-flow since the loan payment would be higher than the rent.

    What would you recommend? Is it obvious that the mortgage is higher than the rent? or is it just that the market in which I trying to work is not good enough? I mean I know that mortgage payment is depending on how much I put as downpayment from my own pocket. I’m doing a 20/80 mortgage plan.

    Any information you could provide will be helpful.

  6. Hello,

    Say I’m only looking for houses to gain a cashflow through rentals.
    What would determine if the house is good for renting out rather than flipping?

    If I’m in a poor country, do you think its a better idea to build a house and then rent it out? Or just buy one?

    When renting out a house, do you fix it up first (make it look good)? Would that raise the rent?

    • Hi Noaf,
      I go usually keep the best houses that cash flow as rentals. A lot goes into my decision including location, rent to price ratio, condition and more.
      In may area I can buy existing houses cheaper than I can new construction.
      I always fix up a house first

  7. I am curious as to which route do you go when flipping a property since you are already a realtor… do you list the property on mls, or fsbo, or craigslist, or do you ever sale a flip thru an auction??? Just curious?

    • Hi Jimmy,
      Sometimes we will put up a for sale sign before we are finished with the repairs and see if we can get a buyer before listing it, but when the home is done we always place it in MLS. When we have sold a home off our for sale signs the buyers almost always have an agent represnting them so it hasn’t saved us any money. We have never used an auction, but lately we have had multiple offers and had to go to highest and best a few times. Since I am a Realtor the commissons don’t cost us as much as others who have to pay the seller and buyer side.

  8. when you use quick calculations, how do your numbers differ in your hold vs. flip? for example, in a flip, i would estimate $40/sf for rehab of existing living area of home and $120/sf for adding sf to home. if you were to consider rehab for rent what per sf number would you use. i’m assuming that maybe a % of cost of flip rehab psf would work better to share so that i could apply that % to my estimate for a hold. for example maybe the # is $30psf, hence a 25% (30 / 40 = 75% or 25% discount).

    any feedback would be much appreciated.


    • Thank you for the comment!
      I don’t use percentages when I do my figures, I get a total figure in my head plus a little extra for unknowns that always come up. I would estimate 10% to 20% less for repairs on a rental than a flip. I also spend much less on repairs than $40/sqft on a flip or rental. I would estimate we spend $7 to $15/sqft on a flip.
      Some things I don’t do on a rental is I may not replace all the fixtures, windows, appliances, or doors. I also will try to get as much life out of a roof or furnace as I can. If those are questionable on a flip we will replace them.

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