A San Antonio investor with $125,000 wanted to know whether flipping homes or buying rentals made more sense.
Jason raised the question on “The Ramsey Show” after he and his family completed three successful real estate transactions.
“Flips are a pain in the butt,” personal finance expert Dave Ramsey said.
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The Legal Wall Ramsey Builds Around His Properties
Jason asked Ramsey and co-host John Delony whether investment properties should be bought through an LLC or under his own name.
Ramsey said he places properties inside LLCs, forming new entities as his holdings grow.
The setup, Ramsey said, is meant to protect other assets if a tenant sues after an accident at a rental house. In that case, the tenant would have to sue the LLC that owned the property. “If they were to win, they can take what that LLC owns but nothing else,” he said.
Ramsey advised Jason to form an LLC even if he only planned to buy one or two houses.
What 2,500 Flips Taught Ramsey
Jason also wanted Ramsey’s take on flipping homes versus holding rentals.
Flipping meant renovating and reselling properties, according to Ramsey. Investors also end up managing subcontractors, choosing materials, handling roofs and pulling permits with local municipalities. “It’s like building a dadgum house,” he said.
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Ramsey said investors can make money flipping homes if they buy the property at the right price, but the work quickly becomes a job.
“I’ve probably done 2,500 flips in my life,” he said. Ramsey said he now usually buys properties and holds them long term instead of reselling them.
He said cable television had made flipping famous, but many people entering real estate “understand about 10% of how hard it’s going to be.”
Ramsey Pushes Back On ‘Passive’ Real Estate
Jason later told the hosts he parked the remaining $125,000 from a recent property sale in an S&P fund while deciding what to do next.
Lower-cost rentals can produce stronger returns, Ramsey said, but they also bring more hassle. Higher-end rentals usually attract more stable tenants, though the percentage returns may be lower.
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Still, Ramsey urged him to consider how a property would age over the next 10 years before buying it, especially if the house was already decades old.
Delony said the decision should start with the kind of life an investor wants, from handling property problems to working with contractors on renovation projects. “If you want to set it and forget it, that’s …
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