Unlike investing in the stock market, when you invest in real estate you have something physical to hold on to. You get to see where your money is going.
I flipped a house a few years back and saw fast success with it. I profited around $9,000 in just a couple months’ time. I was lucky the first time around: I fell into an awesome deal. I am always checking real estate listings in my area looking for that bargain house that I came across the first time. Unfortunately, I’m not having any luck.
Since investing in real estate is the one big financial goal I’m working toward I have to weigh the pros and cons. Should I try to flip another house or would I be better off purchasing a rental home?
Here are the pros and cons of flipping and renting a home.
Flipping a House – Pros & Cons
I’ve got to admit – some of my favorite TV shows are the one centered on flipping houses. Finding a dumpy house, putting a little love into it, and making fast cash. What could be better?
Except that it doesn’t always work out that way.
For someone looking to make a quick profit then flipping a house has a lot of appeal. And with the help of a trusted real estate agent you can get a pretty good idea of whether or not your flip will be a success.
However, the cons of flipping a house can be quite high. If you tie up a bunch of money in a home and aren’t able to sell it you’ll be forced to rent it out, sell at a loss, or wait until the market improves. And if you need the money you’ve put into the house back quickly, you’ll be in a bind.
You’ll also have to trust your gut when it comes to finding that perfect flip house. While I’d highly recommend finding a real estate agent you trust, no one can predict whether or not your flip will sell. You are faced with the challenge of evaluating the current housing market, making necessary improvements, and pricing to sell.
On top of that if you own the home for less than a year and don’t reinvest your profits into another deal then you’ll pay a high tax rate.
Becoming a Landlord – Pros & Cons
One of my close family members has accumulated several rental properties as his main source of retirement income. I actually think this is a good strategy.
But I also know this person has had some tough times with his properties and tenants.
The most significant advantage of owning rental properties is cash flow. Having a renter pay off a mortgage for you is a pretty sweet deal. And of course it’s even better when there’s money left over after making the mortgage payment, paying property tax, and insurance.
Plus when you get the mortgage paid off you’ll have a significant cash flow coming in. Your rental home will (hopefully) appreciate over the years and you can sell for profit when you’re ready to move on. There are also tax advantages of being a landlord, like depreciating the cost of the home even though it’s likely to actually appreciate.
With all the great advantages of owning a rental home there are disadvantages as well. I’m sure you’ve heard horror stories about nightmare tenants before. Being a landlord is not easy. You’ll have to find good tenants, deal with maintenance and repair issues, and won’t have any money coming in in the event of vacancies.
Which is Better: Flipping or Renting?
I don’t think there’s any right or wrong answer when it comes to flipping verses renting. Each comes with its own set of advantages and disadvantages. You have to evaluate your needs and then make a decision that aligns with your financial goals.
Personally, I think flipping houses can be a great way to bring money in for the short term and becoming a landlord is a great long term investment.
What do you think? Would you rather flip a house or become a landlord?