The Debate: Rental Property vs. House Flipping
Many real estate investors are currently weighing the advantages of flipping a home against the advantages of buying more rental properties. So, what’s the difference? Is one better than the other?
You might be interested in purchasing a Chicago apartment as you look to start the rental property process to make some money, or you may be looking into getting capital for a New York homes with flip potential. Either way, you need to know what makes the most financial sense as an investor. At the same time, you need to understand the labor costs, how much time each option will take out of your day, your month, your year or even more.
So, what’s the answer? Well, we know this. You can make money in any area of real estate. You can rent properties. You can flip homes. You can work in new development. And you can do many other things within the real estate industry. That said, you need a plan.
Should I Flip or Rent?
People all across the country have been successful with flipping and renting. For starters, you can make ton of money on flipping. Some people are making millions doing just that. It’s a business and you need to know that before getting started. Again, a ton of property manager have made a big chunk of money in the rental space.
Pros and Cons —House Flipping:
Flipping can be extremely lucrative and can put a large sum of money into your pocket and in a quick way. Here are a few of the pros:
- You do not have to manage a property long-term.
- You do not have to worry about tenant & landlord issues.
- Your money can expect much quicker pay-days once the property is complete.
- You free up your time to work on other projects, since you do not have to manage a rental property every day.
- Short-term satisfaction when the property is sold.
- You will not lose rental income when tenant turnover becomes an issue.
- You will gain immense experience with regard to construction, your local market, general real estate knowledge, creating a network in the real estate industry, budgeting for a large-scale project.
And of course, there are a few cons with regard to house flipping:
- Unanticipated costs during construction.
- Losing money instead of making a profit if you cannot sell the home.
- Realtor fees and costs associated with selling.
- Losing money and profit because of tax regulations.
- Stress of working on a flip and managing the contractors, taxes, budgeting, and realtors.
Pros and Cons —Rental Property:
Rental properties can provide a source of consistent cash and income. But managing the property can often cause major headaches for investors. Here is a look at some of the pros to investing in a rental property:
- You will gain income from renters. The biggest benefit of owning a rental property comes from the renters providing you with an income stream.
- Income from property value growth over time of ownership.
- You can make upgrades to the units if you think that will increase value. And you can do it on your own time.
- You have the cash flow to pursue other ventures.
But as usual, there are a large number of cons to owning a rental property:
- You must deal with the actual day-to-day management of the property.
- Tenant issues often arise and could be a constant headache.
- Rental properties will not provide large payouts in comparison to house flipping.
- Taxes on property ownership are going to be yours to pay regardless of having a tenant or not.
- Being actively involved is one of the main drawbacks, and you will always need to have someone in a position to be involved with the property and to please the tenant.
- The real estate in not liquid. Even in hot seller’s market, it can take a long time to sell a place. And with a rental property, having a tenant in place will severely limit any opportunities to sell when you want.
What Is Your Best Option?
The pros and cons of investing in real estate are vastly different when considering flipping a property and renting a place. The best advice is often to study your market, study your finances, discover what is most motivating and exciting to you, and to make a decision based on your financial goals and needs in terms of where you are in your current financial state.
That said, for investors, house flipping provides some of the biggest opportunities in real estate and leave you with limited long-term headaches when compared to owning rental units.
Many real estate investors are looking to make their money work for them. Flipping houses provides an investor the opportunity to take on a project, execute their exact vision and profit off the sale. Then, you are free to move onto the next successful project. If you want to make real estate investing into a full-time career, then flipping houses is for you.
When it comes down to it, flipping will free you from the worry of constant property management and tenant relations. And you’ll also avoid property taxes in many ways while earning a larger payday in a more efficient manner.
Overall, you must make the best decision for you, and in many ways, flipping is a cut above the rest.
Sam Radbil Sr. Communications Manager