In my blog post [DON’T Switch to Rental – Why You Should Flip It and Move On LINK] I give an overview of several compelling market reasons why it’s a bad idea to attempt to salvage dwindling profits from a cost-heaving fix & flip. In short – it rarely works out as hoped. Here are some back-of-the-envelope financial reasons not to switch from a fix & flip to a rental strategy mid-stream.

Let’s run the numbers and show why recovering the profits you planned for this project probably won’t succeed by switching it to a rental.

1)      A rental is very unlikely to make up for the profits you hoped for as a fix & flip.

You will sacrifice a lot of time (usually many years) just to get back to your original fix & flip profit plan. Take your lesser profit (or loss) and move on.

2)      The cash flow timing is not a match with your fix & flip strategy.

When you first bought your fix & flip you bought it with that in mind, not a rental. This means you fixed the house more than you would a rental. It also means that you did not evaluate it based off of its “cash flow” which is the most important factor in owning rentals and has NO bearing on a fix & flip.

3)      Tying up cash (capital) sacrifices more significant profits on near-future fix & flips.

4)      Rentals are a long ballgame that requires positive cash flow for them to work. Rarely does a fix & flip that has gone bad, fit the parameters of a good rental cause there is NO cash flow. This is like taking a bad situation and making it worse for much, much longer.

5)      When the renter moves out you’ll have to repeat the expenses ofthe cosmetic marketing touches and some of the repairsyou just made, as well as take care of new issues.

6)      Managing a rental takes your valuable time and adds ongoing maintenance and repair expense, as well as tenant marketing and screening. Although we teach the merits of how great a long term rental can be for your overall wealth, again, rarely is a bad fix &flp make for a good rental.

7)      Most jurisdictions have significant restrictions on the sale of rental properties with a tenant in residence, taking away some of your options.

It just doesn’t add up. Switching to a rental won’t convert a loser to a winner – it just delays the inevitable and sacrifices your flexibility and options in the meantime. Take my advise – take your lumps and move on and make your money back in the market place…don’t extend your beatings.

They won’t all be winners, but enough projects will do well to make up for the losers. Experience shows it is almost always better to take the loss like a pro and more on to the next one!

What’s the best way to deal with the frustration of a project that doesn’t turn out as well as planned?

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