Investing in real estate can be a lucrative venture. Still, the approach one takes can significantly impact the returns and overall success of the investment.

Two prominent options often stand out among the various strategies available: flipping and renting. Flipping is when a property is bought on the low and then upgraded before being sold for a profit, usually very quickly. Otherwise, you can hold on to the property and have tenants pay you to use it.

Both have their merits, but understanding the nuances and considering individual circumstances is crucial in determining which approach aligns better with your investment goals.

In this blog post, we will look at the pros and cons of flipping and renting to help you determine which investment strategy is best for you.

Flipping Houses: The Quick but Potentially Risky Option

Flipping houses is not just something you see on HGTV.

This investment strategy involves purchasing a property, renovating or enhancing its value, and selling it quickly for a profit.

The appeal of flipping lies in its potential for a relatively quick return on investment (ROI), but there are some potential roadblocks you should consider:

The Case for Flipping Your Investment Property

1. Quick Returns: If everything goes as planned, your property will sell quickly after your renovations. Successful flips will also typically yield profits quicker than renting out a property.

2. Capitalizing on Market Trends: Flipping allows investors to take advantage of market fluctuations by buying low and selling high.

3. Hands-On Experience: Flipping offers hands-on involvement in the renovation process, potentially adding value and expertise you can use in your future projects. Flipping a house also gets easier to repeat with more experience.

Drawbacks of Flipping a Property

1. High Risk: Flipping can be risky, especially if your renovations run over budget or if the market changes unexpectedly. Profiting on a flip is wholly dependent on selling the house.

2. Time-Intensive: Renovations and the selling process demand time and effort, making it less passive than renting. Because you won’t make any money until you can sell the house, you will want to promptly get any repairs or upgrades done.

3. High Upfront Costs: Besides buying the house, you are also spending money on the property’s upgrades. This means budgeting money for supplies and contractors.

Renting Houses: The Slow but Steady Option

Renting out a property involves purchasing and holding onto it, generating income through monthly rent payments, or on short-term rental sites like Airbnb or VRBO.

This strategy revolves around long-term wealth accumulation and passive income.

Here are some considerations to help you navigate if renting out your investment property may be the right route for you:

The Advantages of Renting Out Your Investment Property

1. Steady Income Stream: Rental properties provide a consistent source of income through monthly rent payments.

2. Appreciation and Equity: Properties generally appreciate over time, potentially offering significant returns on investment in the long run, not to mention the equity you build in the property. You could then access that equity through refinancing or selling the property later.

3. Tax Benefits*: Deductions for expenses like mortgage interest, property taxes, and maintenance can reduce taxable rental income.

Considerations When Renting Out Your Investment Property

1. Tenant Management: Dealing with tenants, property maintenance, and potential vacancies requires ongoing attention and management. If you want to avoid dealing with tenants directly, you can hire a property management company to take care of the property. However, this will deduct from your profit.

2. Market Dependency: The rental market’s fluctuations can impact rental income and property values. If your rental property is vacant, you are not making any money.

3. Less Immediate Returns: Compared to flipping, rental income might provide slower and steady returns.

Making the Right Decision for You

Both flipping and renting have their merits and challenges. The decision ultimately hinges on individual preferences, financial goals, risk tolerance, and market conditions.

1. Financial Goals: Determine whether you seek quick returns or long-term, steady income.

2. Risk Tolerance: Assess your comfort level with risk and your ability to handle potential setbacks.

3. Market Conditions: Research the current real estate market and analyze how it might impact your chosen strategy. You could also seek out advice from your business advisor, real estate agent, or mortgage expert.

4. Skill Set and Resources: Consider your expertise in renovation, property management, and the availability of time and capital.

Some investors might find success in flipping properties for quick profits. At the same time, others prefer the stability of rental income for long-term wealth accumulation.

It’s essential to conduct thorough research and evaluate your personal circumstances.

Ultimately, success in real estate investment often comes from a well-informed, strategic approach that aligns with your goals and resources.

Making the correct investment decisions can help you build generational wealth.

Schedule a free consultation with one of our expert loan officers. This is a great way to learn which investment strategy is right for you after examining your finances. Let’s get started today!

The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 12/21/2023 


*Information is not considered tax advice. Please your accountant for information.