Jan 10, 2020 - by Erik Carrier
It's the age old question for those looking to profit from a potential real estate investment - is it better to flip a property (buy, make improvements, and sell) or buy a property for the rental income?
The answer? It depends greatly on your risk tolerance, your skill set and your overall, long term objectives.
Investing in Real Estate
It’s important to note at the outset that both approaches are simply different means to the same end - profiting from your real estate investment. You're likely already familiar with the many benefits of real estate investing - predictable returns in uncertain financial markets, a hedge against inflation, an opportunity to build equity, the ease of borrowing against those capital assets, and the deductibility of mortgage interest, among others. Once you are sold on the idea of investing in real estate however, it's important to identify the right approach for you to personally generate profit from the investment property.
What are the advantages and disadvantages of both flipping for a quick profit and holding on to properties over a longer period to generate income from their rental? Let's explore the differences between these two very valid approaches to real estate investing.
Advantages of Real Estate Flipping
Real estate investors are drawn to flipping because of the potential to make substantial profits in a lump sum, but there are other notable advantages. Flipping real estate properties, for example, is also an exceptional way to improve a range of professional skills - from time management to contract negotiations - and can be immensely rewarding, creating something new from something old and giving it a new lease on life.
Disadvantages of Real Estate Flipping
There’s a great deal of interest in real estate flipping but make no mistake, there is the potential to lose significant sums of money and create an immense amount of personal stress (caused by renovation delays or the inability to sell a property). The associated financial risk is major (particularly in the case of a broader market slowdown or degrading economic conditions) and keeps many away from trying their hand at flipping a property.
Advantages of Buy, Hold and Rent
Some real estate investors are interested in a quick profit, others in building long term wealth; in the case of the latter, buying a property for the purpose of renting is an exceptional means to create a passive stream of income, build equity and even contribute to the growth and continued wellbeing of a neighborhood or broader geographic area.
Disadvantages of Buy, Hold and Rent
Rental properties have long been an excellent way to grow wealth, but make not mistake - the return is rarely realized immediately. Plus, renting a property means maintenance and upkeep is required and in some cases (depending on the property) those costs can be extraordinarily high.
Which Real Estate Investing Approach is Right For You?
Flipping and using properties for rental income are both profitable approaches. The right decision for you depends on your objectives (and the time horizon which you expect a return) and the resources you have to manage and improve properties. While flipping properties is often the best choice for those with a desire for short-term capital gains, those looking to generate wealth and income from their real estate investment should focus on buying properties, holding them for a longer time period, and generating income from their rental (particularly because of the impact of higher interest rates).
Own a rental property? Looking to increase your rental income and outsource the management of your real estate property? Speak to the experts and contact Red Star Property Management to request a free property management consultation.