There are several different types of real estate strategies but the two people most often compare are house-flipping as compared to buying rental properties. Many people may be looking at each of these options to identify which may be a better fit for their real estate investing goals. Here are a few of the primary differences between flipping houses and renting out properties.
Which results in profit faster? Flipping or Renting?
Flipping houses can produce a large amount of money in a relatively short amount of time. From the time you purchase a flip until it is sold is typically 6-8 months. This type of business could produce a profit of 20-30K and depending upon the timing, the quicker your house flips are completed and sold, the higher the return on investment and the more projects you will be able to complete.
Which has a shorter time frame?
With a flip, you have your share of overseeing and being involved in the project, but once it is completed, it is finished. When it’s done, then you can move onto the next project. There is no long term management of the property, handling maintenance requests, or monthly rent collection.
What about the taxes?
When a property is sold as an investment for profit, it may be subject to capital gains tax. This rate will vary depending upon the time it was held.
Typically, the profit is taxed as ordinary income, which may be higher than the rental income would be.
What are the benefits of investing in rental properties?
Cash Flow
Rental properties are used to create cash flow. This means that every month, there is income being made on them. They are traditionally a long term investment and provide income over time. While this is great for those wanting to build wealth and financial independence over a period of time, it is not going to be a fit if you are looking for profits quickly.
What about the taxes?
There are some advantages available when you invest in renting out properties. Expenses related to maintenance and operation may be deductible. Depreciation is another aspect that is a benefit but it takes value over a period of time to account for wear and tear.
Value over time
This is my favorite benefit when it comes to owning rental property. If you can be patient, appreciation will see your property increase in value over time. Especially, if you purchased the property at a discount.
What is the downside to renting properties?
Management, upkeep, and tenant placement are all areas to consider when renting properties. If being a landlord is not part of your plan, you can hire a property management firm to handle these details for you. If this is the path you prefer, make sure to include the expense when analyzing any potential rental property purchases.
So is renting or house flipping for you?
By now you’ve probably discovered that these are two very different concepts within real estate investing. The one that is better is the one that best fits with your personal goals.
Consider which options work better for you now as far as time and resources. Also, if you are looking to buy discounted rental properties and make repairs on them and then rent them out, it may make sense to do a couple of flip projects to become familiar with that process. Or, you may want to flip to generate some down payment funds for a rental-purchase.
Don’t forget what your personal strengths and interests are as well. If you know that collecting rent is going to drive you crazy, don’t put yourself in the landlord position. There are so many options of how to do things, choose what makes the most sense for you and your goals.
Want to buy a property and renovate it?
Looking to buy a house to renovate? Check out the fixer upper checklist to help you find the perfect house.
For more inspiration for home renovations, follow me on Pinterest @thresholdhomesmn
