It’s a beautiful home. Sure, it needs some work, but you look at it and only see the potential. Of course, you won’t be living there. You’re sizing this home up as an investment property. The only question is whether you’ll flip the home or use it as a rental property.
In this blog post, we’ll look at the pros and cons of both options.
There are several advantages to flipping a property, chief among them the chance to turn a quick profit without tying up capital for an extended period.
But beyond that, flipping property lets you gain some valuable experience:
- Construction education – You’ll get new insights into different aspects of construction, such as the cost of materials, what it takes to make electrical or plumbing repairs and how to spot environmental hazards such as asbestos or mold.
- Market knowledge – After you put the property that you’ve flipped up for sale, you’ll have a better understanding of your local real estate market and what buyers are searching for, allowing you to be more successful with the next property you flip.
- Networking – You’ll build your network of industry contacts, from contractors to real estate agents to building inspectors to insurance brokers to attorneys.
At the same time, you should be aware of the risks that come with flipping properties:
- Taxes – The money you make when investing in flipping properties may be subject to capital gains taxes, which can eat into your profit.
- Unforeseen expenses – Delays in getting permits. Contractors who go off schedule. Materials you hadn’t planned for. All of these things can add up to a loss of profit.
- Difficulty selling – You’ll need to pay holding costs – mortgage, maintenance, taxes, insurance – on the property while you wait for it to sell. The longer it takes to find a buyer, the more money you’ll lose.
Renting a property
So let’s say you decide that flipping isn’t for you and you’d rather buy and hold on to the property as a long-term investment.
Again, it’s a strategy that offers both advantages and drawbacks. The key advantage here is your potential for cash flow and building wealth in the long term.
Investing in rental properties can provide you with a dependable source of income – provided you have paying tenants. Depending on your community, monthly rents can cover things like principal and interest payments along with taxes, insurance and maintenance. And because homes tend to appreciate, you’ll be able to build up wealth the longer you hold on to them.
However, owning rental properties can also have some pitfalls:
- When you don’t have a tenant, you’ll need to absorb all the monthly costs that come with owning a property.
- Even when you do have tenants, you’re responsible for ongoing repairs and maintenance. If you don’t live close to your property – or don’t have the time/expertise to handle maintenance – you may need to hire a property management company.
- Owning rental properties requires some detailed insight into the local market. You’ll need to put yourself in the minds of potential renters to assess what makes the property desirable.
Learn more about investing in rental properties or flips
If all of this seems kind of daunting, don’t worry. DIG – the Diversified Real Estate Investor Group – is here to help. We’ve spent more than 40 years assisting investors and connecting them to the professionals – Realtors, insurance brokers, contractors, etc. – who can help them reach their goals.
Whether you’re new to flipping houses or want to try your hand at investing in rental properties, DIG has someone who can work with you to turn an old home into a new source of income.