Are you curious about how to make money in the Real Estate market? We don’t blame you. Real Estate can be a solid investment to pump up your portfolio. However, what’s the best way to invest without a ton of risk involved? Well, there are two main strategies: flip and sell, or buy and lease.
If you are thinking about being a landlord, you should carefully consider all the front-end expenses and the long-term maintenance that comes with a rental property.
Let’s look at the pros and cons of each Real Estate investment option to determine the money-making potential of each.
The Flip & Sell
Flipping houses has made up most of HGTV’s roster for several years now and it can be a lucrative business if done right.
Aside from sizable profits, here are some of the other main benefits of the flip-and-sell Real Estate approach, particularly in the case of multi-unit and single-family homes:
Flipping is fast: Buy a single-family home, make repairs, and you’re out. It’s short-term Real Estate success. No begging tenants to pay rent every month. The average length of time it takes to fully rehab and sell a property or piece of Real Estate is about six months. This means that you or your investor’s capital won’t be tied up indefinitely in your Real Estate purchase.
Potential Flip Flops:
But Real Estate flipping does come with downsides, like the following investing detail:
Transactional costs: Obviously, the first action you take with a Real Estate flip is the “fix” and home repairs can be expensive. You can cut costs by doing some of the rehab work yourself. Find a contractor you trust to give you a realistic estimate of the budget you’ll need. Be sure this budget reflects how much you’re truly willing to pay to get the property into sell-worthy shape.
Once renovations begin, remember that time is literally money in Real Estate. If you don’t have an efficient timeline for the work, you’re likely to sacrifice precious cash. And don’t forget the mortgage interest payments, which accumulate while the property is being rehabbed.
Unforeseen complications: These might range from zoning or permit complications to gas, electrical, or septic problems. Due diligence can help you sidestep many issues and protect your Real Estate investment but be sure to include room in your budget for unanticipated hurdles.
Also, make sure your renovations are done with the proper permits and paperwork; otherwise, you may have trouble selling it later. More than a few Real Estate buffs have learned this the hard way. It’s a Real Estate investing headache you’ll want to skip at all costs.
Buy & Rent
Recently, RealtyTrac data has found that rents are rising faster than median home prices in 45% of the markets analyzed, which may make snagging a rental property an attractive income-producing option.
That means more profits for wannabe landlords and Real Estate hawks who decide to buy property, then rent it out for a continuous income stream. It’s the sort of investing scenario people envision when they decide to invest.
The higher that rents continue to climb, the more profits passive income investors should be able to realize.
This “buy and hold” approach comes with its own unique benefits, like:
A steady income: Rent, ideally covers your mortgage payment, but also your property taxes, HOA dues, insurance, and all other costs, with maybe a little something left over.
Long-term wealth potential: Since Real Estate has historically appreciated over time, it is likely that the longer you hold the rental property, the more you can make. You can also outlast the market dips, sitting out market downturns until conditions improve while continuing to collect rent and chip away at your mortgage pay-down.
The Risks of Renting
Maintenance hassles: Clogged toilets, broken garage doors, rats, etc. The fix-it list can be endless, and many rental property owners are tasked with handyman duties, as well as coaxing their tenants to pay their rent on time.
Don’t underestimate the challenge of finding and keeping quality tenants. If you’re not cut out for all that work, you can hire a property manager.
So, by now the thought of renting may seem terrifying, or maybe you are ready to jump right in. While both renting and flipping have the potential of making money, Real Estate investing is certainly not for everyone.