Once the work is done, a flip house can go two ways: sell it, or rent it out and refinance, which is the BRRRR method (buy, rehab, rent, refinance, repeat). Until then, both paths cost the same.
What’s the difference between flipping a house and keeping it?
A flip ends with a sale. The sale pays off the flip loan and the selling costs, and the rest is your cash plus the profit.
Keeping the house ends with a refinance: a new 30-year loan, sized on what the finished house is worth, pays off the flip loan. That value sets how much of your cash comes back, which is why the appraisal decides a BRRRR. Whatever doesn’t come back stays in the house, and the rent has to carry the new loan.
What does each path leave you with at month six?
Take a house bought for $140,000 that needs $30,000 of work and will be worth $235,000 when it’s done. A short-term flip loan, often called a hard money loan, covers 85% of the price and all of the work at 10% interest plus 2 points (2% of the loan, paid up front). Carrying costs, the taxes, insurance and utilities during the work, run $850 a month for six months, and selling costs 8% of the price. Keeping it means a new loan for 75% of the value, at 7.5% over 30 years, with 2% of the loan paid to close.
| Sell it | Keep it | |
|---|---|---|
| Sale price, or the new loan (75% of $235,000) | $235,000 | $176,250 |
| Purchase and rehab | −$170,000 | −$170,000 |
| Closing costs when you buy (2%) | −$2,800 | −$2,800 |
| Carrying costs, 6 months at $850 | −$5,100 | −$5,100 |
| Flip loan’s points and interest | −$10,430 | −$10,430 |
| Selling costs (8%) | −$18,800 | – |
| Closing costs on the new loan (2%) | – | −$3,525 |
| Profit, or your cash still in the house | +$27,870 | −$15,605 |
These are example figures, not a forecast for any market.
Sold, the house hands back the $39,330 you put in (a $21,000 down payment plus the closing, carrying and loan costs) and $27,870 of profit: $67,200 at month six. Kept, the new loan pays off the flip loan and returns $23,725. That leaves $15,605 of your cash in a $235,000 house with $58,750 of equity, the share of its value the loan doesn’t cover.
That assumes a lender willing to refinance at month six. Fannie Mae’s rules, for one, won’t let a cash-out refinance (a new loan that pays off the old one and hands you cash) pay off a first mortgage less than 12 months old (B2-1.3-03). Ask lenders before you buy, because the flip loan charges $1,242 a month in interest until it’s paid off.
What does the kept house pay each month?
The kept house rents for $2,450 a month. Set aside 8% of the rent for empty months, and 8% each for repairs, big repairs and a property manager, the costs a first pass tends to leave out. Property taxes are $2,400 a year and insurance $1,260.
| Each month | |
|---|---|
| Rent | $2,450 |
| Empty months (8%) | −$196 |
| Property taxes and insurance | −$305 |
| Repairs, big repairs and management (8% each) | −$588 |
| New mortgage, $176,250 at 7.5% | −$1,232 |
| Cash flow each month | +$129 |
That’s a thin cushion. The house breaks even at about $2,260 in rent, so if similar houses rent for less, keeping this one costs you money every month. The loan that hands your cash back is the same loan the rent has to pay.
How long does keeping it take to beat the flip?
A kept house pays you through its cash flow, a shrinking loan and any rise in value. Here’s your profit before taxes if you keep it and sell later, paying the same 8% to sell, first with everything flat and then with values rising 3% a year and rents and costs 2%.
| Values and rents flat | Values up 3% a year | |
|---|---|---|
| Flip, sold at month six | $27,870 | $27,870 |
| Keep, sell after 1 year | $27,513 | $33,999 |
| Keep, sell after 2 years | $30,808 | $44,301 |
| Keep, sell after 5 years | $41,550 | $79,317 |
| Keep, sell after 10 years | $63,055 | $152,921 |
With nothing growing, keeping passes the flip’s profit in its second year. With values rising, it passes in the first and keeps pulling away.
The table leaves out timing. The flip pays at month six, while the kept house pays mostly on the day you sell. Until then it holds back $43,475 the sale would have handed you: the $15,605 still in the house plus the $27,870 profit.
How are flip profits and rental income taxed?
Flip profits and rental income are taxed differently, and the gap can matter as much as the table.
- The flip. Own the house one year or less and the gain is short-term, which the IRS taxes as ordinary income, at your regular rates (Topic 409). If flipping is your business, the houses aren’t capital assets, because the IRS excludes property you hold mainly for sale to customers (Publication 544). Business profit can also owe self-employment tax, 12.4% for Social Security plus 2.9% for Medicare, once net earnings reach $400 (Topic 554).
- The rental. Rent and its costs normally go on Schedule E, where you also deduct depreciation, an allowance for the building wearing out, spread over 27.5 years. Land can’t be depreciated, and depreciation lowers your basis, the cost your gain is measured from (Publication 527). Sell after more than a year and the gain is generally long-term. For 2025, the IRS says the rate on most net capital gain is no higher than 15% for most people, and it caps the rate on the part of a gain that comes from depreciation at 25% (Topic 409, Publication 544).
A rental can generally be swapped for another investment property in a like-kind exchange without the gain being taxed at the time. A house held mainly for sale can’t (Publication 544).
Whether your flips count as a business, and what either path leaves after tax, are questions for a tax professional.
So should you flip it or keep it?
Four checks narrow it down before you make an offer.
- Find the rent the kept house needs to break even on the new loan, and compare it with what similar houses rent for.
- Decide how long you’d hold it. Sell a kept house soon after the refinance and you’ve paid for a loan the flip never needed, $3,525 here.
- Name what the flip’s cash would do next. If it would fund another flip within months, the kept house has to beat that too.
- Ask lenders when they’ll refinance, and what share of the value they’ll lend. Both change the cash left in.
Run the flip in the flip calculator, then the same house in the BRRRR calculator with the flip loan’s points and interest added to the carrying costs: about $2,588 a month here instead of $850. Before you trust the flip’s side, see what three surprises did to a flip that passed the 70% rule.