Which is better: flipping houses or owning a rental property? There are many pros and cons to each.
It’s true that investing in real estate can be profitable for people at any level. The different types of investing have different benefits, costs, and risks. Before you start investing, it’s a good idea to understand the differences and determine which option is best for you.
How to Start Flipping Houses
Some investors consider themselves to strictly be house flippers, meaning they buy a beat-up house, fix it up, and quickly sell it for a profit. Most often these are single family homes. These are the people you see on all kinds of HGTV shows, they make it look way easier than it actually is!
Some things to consider if you want to pursue the house flipping route, you’ll need to keep in mind that it’s not consistent income. You only make money once you’ve sold a fixed up house. It takes time to find and fix one before selling it, and your money is tied up during that time. If you have the available funds, this can be a lucrative plan!
What to Look For in House Flipping
It’s important to be informed about flipping and make sure you have a plan. To make house flipping profitable, you need to find a good deal on a fixer-upper, stick to your renovation budget, and sell the house for a profit. You also need to do this in a short period of time, or risk paying all the expenses of the home (mortgage, utilities, etc.) while you wait.
Flipping houses is a full-time job. The most successful flippers have a tried and true plan, a list of contractors that they trust, and find their flips in markets where houses sell quickly. That’s not to say that you can’t be successful if you try flipping in a slow market, without a plan, and with no contractors at the ready, but it will be a much tougher road.
Be sure to do your homework before deciding to flip a house, and if possible, partner with someone more skilled or experienced. It’s easiest to learn while working with someone who knows what they are doing, you can learn from them and when you’re ready, take on a flip by yourself.
Rental Property Investments
Others consider themselves “buy and hold” investors, which means that they buy a rental property, find tenants to live in it and pay them rent, and hold on to the property for many years. Typically, these properties are multi-family units housing anywhere from 2 to 5 families.
This type of investing provides more consistent, monthly income, but also comes with the headache of tenants and repairs over the time that you own the home. If you are handy and don’t mind dealing with people, rental property may be for you. Before you buy a rental property, check out The Landlord Responsibilities You Should Know About for some information.
There are lots of laws regarding landlord and tenant rights, and some states are more lenient toward one or the other. You will want to make sure that you are aware of all the laws governing your rental property and that all your documents are correct, legal, and official. Having all your documents organized will help to protect you if you are ever sued by a tenant.
We don’t say any of this to scare you off, but to help you make informed decisions about purchasing a rental property and becoming a landlord. It isn’t for the faint of heart!
Flipping vs. Renting: Which is right for you?
Some real estate investors dabble in both flipping houses and owning rental property. Ultimately, you need to decide which route, or combination, best suits your lifestyle and resources. As with any big purchase, there are both risks and rewards with real estate investing. It’s important that you take all of these into consideration when making your decision.
When it comes to real estate investing, there are many ways to go about it. Above are two of the most popular methods, house flipping and investing in rental property, but if you want to learn more about other options, check out this guide to get started in real estate investing.