Flip vs. Rent—Which Real Estate Investment is Better?
If you are new to real estate investment or you recently inherited a property, you’ll want to figure out your investment strategy as soon as possible. Create your business plan, set your budgets and know what you plan to do with the property in order to make some good money from it.
For most real estate investors, it comes down to a simple choice: flip vs. rent. You can renovate and update the home and then resell it for a tidy profit. This is known as a “fix and flip” investment. Then, the other most common option is what we know as “buy and hold” investing. You hold onto the property and rent it out.
So, which investment strategy is better? That’s not a simple question because all investors have their preferences and business models that they like best. Ultimately, you have to do your research and select which path you think will provide the best overall return on your investment (ROI). Here are a few things you should know about each of these popular real estate investment strategies:
Fix and Flip
The good thing about house flipping is that you (hopefully) aren’t holding onto the property for too long. You buy a house in an up-and-coming market with good resale potential. Ideally, you buy it for a great price. Then, you immediately invest your time and money into whatever renovations, clean-ups or upgrades that it requires. The goal is to maximize its resale value. When all the work is complete, you list it on the open market and sell to the highest bidder.
A fix and flip investment can bring faster gains and a larger chunk of profits in a much shorter amount of time. Let’s say it takes a full year to buy a house, renovate it and resell it. You will recoup all your expenses and earn all your profits once the sale is complete. Then, you can move onto the next investment opportunity.
The downside of fix and flip investing is that it is not as easy as many people think. It looks so fun and simple when watching HGTV house flipping shows, but it really is a lot of hard work. The expenses quickly add up and some inexperienced investors can get in over their heads. However, if you have a good plan, set a realistic budget and do everything well, you should be able to turn a very healthy profit when all is said and done. House flips can be great profit generators for those who know what they are doing!
Buy and Hold
Now, let’s look at buy and hold real estate investing and the pros and cons of this approach. On the plus side, a well-managed rental unit can generate a nice income month after month. Even if you are financing the house with a mortgage loan, you are ideally earning enough back in rent to cover that and any other homeownership/property management expenses (insurance, taxes, maintenance, repairs and perhaps property management fees if you are hiring someone else to handle the day-to-day needs). Over time, you will keep earning money from your property on an incremental basis.
Another great thing about holding onto the house is that its value will likely appreciate over time. Real estate is almost always a solid long-term investment. You will gain home equity in addition to your rental profits. Then, you can raise rent when appropriate or decide to sell it when the time is right.
Owning a rental property is a great option, but again it is important to have a good plan and budget. There may be some renovation time and costs involved before the property can be rented out. Then, you have marketing, property management fees, maintenance and repair costs, and other ongoing expenses that can eat into your overall profitability each month. You’ll also need to understand the market and rental pricing trends to set a proper rent price. Vacancy periods are another concern as you’ll want to keep the property occupied with quality tenants.
Flip vs. Rent
So, which is better? We can’t answer that question for you. We have plenty of both types of real estate investors in the PropertyLark network and we provide resources to help all of them succeed in today’s housing market. You have to figure out for yourself which approach will net you the best financial gains and suit your business style. Both are great investment strategies when done right.
To learn more about the PropertyLark home buying network and how we can help you become a better real estate investor, contact us today. Fill out the form to the right to see if you qualify.