If you’re looking to join the 64% of Americans who own real estate, then you’ll want to start looking at that process as an investment. Real estate often retains value or goes up in price, but making the property a rental facility might seem more lucrative. The true decision on whether to buy-and-hold or flip a house comes down to location and timing.
Here is our guide to whether you should buy and rent or flip a property.
Benefits of Flipping
Flipping houses to sell can be a great way to make your money work harder for you. If you have the money to put down and make the necessary changes, the chances are that once the flip has happened and sold, you’re going to make a killer profit.
Cash In Hand
The number one benefit for house flipping will be the cash-in-hand once the house closes. Instead of relying on people paying rent and getting passive income over the course of however long you hold the house, you get one lump sum straight to your bank account.
You can then take this cash and start the process of slipping into another house. This becomes a domino effect where you can have one flip make enough money two start two more flips.
For those who want to learn more about starting this domino effect, check out this great post to read.
No More Worrying About the House
Once you’ve finished the house and closed on it, it’s no longer your problem to deal with. If a year down the road the roof gives in or the AC breaks, that doesn’t matter to you.
You don’t need to hire a property manager to check on the house and service the utilities. You can sit back and relax as you focus on new projects.
Negatives of Flipping
House flipping isn’t all pros, though. You’re taking a gamble by selling your house early for-profits, which could diminish the return you make in the long run. You will also need the money upfront to start the flipping process.
Potential Loss In Value
While flipping the house might make you $40,000 to $60,000 now, holding the house over a ten-year period could make you even more.
Let’s say you pick a house to flip, and it cost $300,000. You’re going to make around $40,000 after a few months of work on the house. That still has a great return and comes close to what most Americans make in a year.
But if you there is also the option to buy, rent, and then sell. After renting for 10 years and the property’s value going up hypothetically 8% every year, then the property will now be worth around $647,677. You’re going to walk away with around $347,677 in profit plus what you made from renting the place.
Upfront Cost To Flip
You’re going to need to have the cash on hand from either the loan or your own pocket to kick start the flipping process. For many Americans, this can be hard as they don’t have the money for a down payment. As of 2019, the majority of Americans had less than $1,000 in their bank account.
This makes the cost of entry to flipping houses high. You do have the option to buy a home and then maximize your loan for the flip. Once the house has been flipped, you then refinance the house and use the cash bonus from the increased value to make your money back.
Benefits of Renting
Renting comes with its own benefits, like the passive income every month and the fact that you still own the house while it gains in value over time. Someone else can pay off the house for you while you live on a completely different property.
Passive Income
The main reason that people rent out their real estate investment will be because of the passive income from renting every month. Even if you need to take out a loan at first, you can still have someone else pay off the loan for you rather than having to do it yourself.
Passive income matters when you’re retired, as you’ll want money comings from different sources when you’re no longer working.
Can Always Move Back In
If your current living situation is no longer suitable and you know you have tenants leaving soon, you can always move back in. At the end of the day, that is still the home that you own.
This could also turn into a vacation home that you set up short-term rentals at for others. That way, you can still utilize the property for yourself while getting others to pay for it.
Negatives of Renting
Renting also has significant downsides. You’re now going to need to hire a property manager and deal with other costs related to upkeeping a property.
Possible Bad Tenant
Even the best tenants on paper can quickly turn into a renter’s nightmare. They could fall behind on payments, which would take away from the money you’re going to be making every month.
The eviction process can also be time-consuming if you need to.
Cost To Upkeep the Property
While you may have flipped the property when you first bought it, you’re still going to be responsible for the things that break in the house. Whether that be an appliance or the roof, it still falls back on you.
When these items need upkeep, they will eat into the profits you make from renting every month.
Buy-And-Hold Vs. Selling: Key Takeaways
The question of whether to buy-and-hold for renting or selling the house outright will come down to your specific situation. If the area continues to grow in value, you might want to consider holding off for a few years before you sell. Those that just saw a house that was priced well and could benefit from a flip should act ASAP.
Be sure to check out the rest of the blog for any other questions on real estate. If you know someone looking to get into real estate investing, share this article with them first.
