Which is Better: Renting or Flipping?
If you are buying an investment property or have inherited a second home, you have some decisions to make. The most important is what your investment strategy is going to be. Are you going to hold onto the property and rent it out (aka “buy and hold” investing), or are you going to renovate and sell the house (aka “fix and flip” investing or simply “house flipping”)? Will renting or flipping be better for you?
That is a decision you should make before you even start looking for an investment property to purchase. In the case of an inherited property, it is one you’ll want to make as soon as you can to avoid wasting time and money on the house.
So which is better? Will you make more long-term profit renting out the house, or should you sell it for a quick return on investment (ROI).
Deciding the Best Investment Strategy for You
The truth is there is no right answer here. One method is not necessarily “better” than the other. We work with real estate investors of all types at PropertyLark and many are very successful utilizing both investment strategies. The important thing is to figure out which makes more sense for you. Then, you must develop your investment plan, budget, analytics process and other details to maximize your results—no matter which method you use.
Let’s look at the pros and cons of each real estate investment strategy:
Buy and Hold Investment (Rental Property Ownership)
The two primary advantages of owning a rental property are easy to understand. First, you can collect rent payments every month. The amount should cover your home ownership costs (maintenance, taxes, insurance, HOA dues, etc.) and then some so you make a small profit from month to month. This obviously adds up over time.
The second advantage of buy and hold investment is that you will likely earn equity on the house over time. As you own it, it will increase in value. This allows you to periodically raise your rent and potentially sell it in the future for a nice profit.
The disadvantages of rental property investment are also pretty clear. You have to spend time and money to take care of the property. You might be paying a property management company to run the day-to-day and handymen to deal with repairs. Marketing needs to be done to keep the property occupied and avoid extended vacancy periods. Tenants need to be screened and dealt with if they end up causing problems. There can be many headaches that come with owning a rental property. You have to be ready to deal with them and make sure the investment will be worth it in the long run. Buy and hold investment is a long-term strategy, so it takes patience and perseverance to be successful.
Check out our full article about The Pros and Cons of Buy and Hold Investment.
Fix and Flip Investment (House Flipping)
The TV shows make house flipping look sexy, fun and easier than it really is. It takes a lot of time, money and effort to properly renovate a house and then sell it for maximum profit. On the positive side, fix and flip investing allows you to see your full profit quickly. When the property sells, you collect your earnings and can move onto the next investment.
Just how big the actual payday is can be the difference between a successful house flipper and an unsuccessful investor. You have to be extremely thorough in running your property analytics and crunching the numbers for your budget. All your money will be spent upfront on the purchase of the house and then the renovation, which will usually end up being more expensive and time-consuming than you think—especially if you are a first-time flipper. Problems arise. Complications occur. You have to be ready for anything that can happen.
Then, you have to be prepared to market the house and get it sold for maximum value on the open market. Only once it is sold will you see any profit. Fix and flip investment also requires plenty of patience and perseverance, even though it is more of a short-term real estate investment strategy.
Check out our full article about The Pros and Cons of Fix and Flip Investment.
As you can see, both methods will test your patience and your budget. Neither should be approached without proper planning. Which one is right for you will depend on your investment goals, the property and how you execute your plan. One is long-term. One is short-term. Both can earn you a lot of money if you do things right. Both can be a nightmare if you do things wrong. Do your research and plan carefully before deciding between renting or flipping!
Whether you are an experienced real estate investor or a first-timer, consider joining the PropertyLark home buying network. Fill out the questionnaire on our buyer’s page to see if you qualify.