Real estate investors just starting out and on the lookout for their first deal can often wonder how to handle the first acquisition. People can make money flipping real estate buying and selling distressed property but theyflip or keep can also make money by buying low, financing the property and making money each month with each rental payment. So how do you know if you want to flip a property or keep it for cash flow and long term appreciation?

Your initial approach is to do some math. And don’t run these numbers alone. When considering a flip, you need to determine your lowest offer the seller is willing to accept. That number is something you should review with the professional real estate agent on your team. You want to be as low as you can to make the most money but you also want to get your foot in the negotiation door. Your agent will also tell you what the property can sell for once the home is ready for market.

Working with your contractor, take a day and closely inspect the property to see if there are any major repairs that need to be made. If there are, that’s money taken from your bottom line. If the property simply needs a little TLC, there’s less taken from your ultimate sales price. Next subtract all selling costs from the sales price. Once this has been completed, you have your flip number. Say the final cost is $200,000 and you can sell it for $230,000 for a net of $30,000.

Now look at the same property without selling it but with all the needed repairs. You have a $230,000 home and you have a new monthly payment. Using a 30 year fixed rate of 4.50 percent, your principal and interest payment is $1,267 on a $160,000 note. Now add property taxes, insurance and estimated maintenance costs to arrive at a final monthly amount of $1,700.

Your real estate agent can provide you with current market rent for the area and establish an amount your tenants will pay. If your agent says $2,500 is a fair amount for rent, your cash flow each month is $2,500 - $1,700 = $800.

So, rent it or flip it?  If you rent, it will take 37.5 months to equal the $30,000 flip profit. If you plan on keeping the property longer than that, it’s might be best to hold. Of course, any long term financial decisions should both align with your business plan as well as after a consultation with your financial planner.