Purchasing a home is a huge investment even if you might have plans to live on the property for a lifetime. This is because the real estate market has made a comeback and the price of homes will continue to progress in the coming years.
With the real estate market making a comeback, investors are also stepping back in to discover ways of how to turn selling homes into their advantage. In buying a home for investment, you actually have two options: either you rent it out or flip it. In this article, you will know which the better option is by looking through each of their strengths and weaknesses.
Reason behind the Flipping Discount
Most of the properties that are marked for flipping are normally fetched at a price that is
much lower than its original market value because they are distressed properties. Distressed properties are those properties that are under foreclosure. Hence, when you buy them, your rights are subject to the foreclosure of the bank and you will end up doing a lot of paper works to put it back in the market. Depending on the circumstance and with the right contractor, flipping properties could give you a good return on your investment.
Renting for Profit
Buying a property so you can rent it out to outsiders does not always mean you’re going to get a better deal than flipping. There’s a possibility that the monthly rental fees are not enough to cover the mortgage curving you to a financial fall down. But if you have a good renter and a good rental price, it’s easy to pay off the mortgage and gain equity. Later on, as majority part of that loan is reduced, you can sell it out for a higher price.
Rental versus Buyer’s Money
Flipping is quick but the process of earning profit can be long and tedious. If you want to make money flipping properties, it means you have to be on the watch. Once you find a property, you set up the cash deals, make some minor repairs, and put it out in the market again for an improved price. If you sell the house, then it is profit on your side. You’re going to do the same steps over again.
The downside is that there is no guarantee that you are going to have it sold for the first month. It could happen the other way around, which means that you need to gather a lot of patience until a buyer comes in.
With renting a property, you are sure that you are going to receive something at the end of the month. But if you are someone who has other businesses around the world, and you can’t be sure to keep up with house maintenance, this might not be a good option for you. There are rental property management who can take over the management while you are away but they are going to charge you some fees.
Which is More Revenue Generating?
Rental can basically give you a stable revenue stream. Let’s say you have a mortgage worth $1,000 per month, you can rent out your property for $1,500 a month, so you can pay the $1, 000 for your mortgage and keep the $500.
Flipping properties can give you more than what you can from rental properties but you are going to wait for a while. You’d really need to have some passion for waiting. The bottom question is are you prepared for this?
Whether you will opt on renting or flipping properties, the advantage will always depend on a lot of factors. But whichever path you choose, make sure you weigh all your options.