Which will bring you the largest profits from Real Estate Investing?
Real estate is a tried and true investment that offers both short-term and long-term gains. Before you purchase
a property, you will have to determine if it is best to flip the property - make improvements and sell it fast -
or rent it out. We all know the market fluctuates; even people who are not involved in real estate investing know
the terms "buyer's market" and "seller's market." Which decision you make depends on what is happening in the market
and how much the property costs.
How to Know When to Flip a Property
House flipping can provide huge profits if you do it right. Key factors are the purchase price, the location and
condition of the property, and what similar homes in the area are selling for (and how fast!).
Generally speaking, if you plan to purchase a home with a high price tag, your best bet is to turn it around
quickly. Expensive homes come with big mortgage and property tax payments, which usually rules out much if
any cash flow for renting. It can also be difficult to find renters for higher priced homes, and if they miss
a rent payment for one or several months, not only can all your profits disappear, you may take a loss.
If you find a great property that requires mostly cosmetic changes, you should be able to flip it easily for a
nice profit. A property with major structural problems can be a "money pit," especially if the price was high
to begin with. Before you commit to any major change, assess not only your cash resources, but also your work
force resources. Do you have relationships with contractors, landscapers, and other skilled labor professionals?
How to Know When to Rent a Property
Renting your investment property can provide you with monthly cash flow while you build equity. Renting also
allows you to take advantage of tax breaks for any improvements you make to the property. Again, key factors
are the price of the home, if the market has growth potential, and the condition of the property.
A lower-priced home translates to a lower monthly payment, property taxes and insurance. Remember, you don't
need to make a huge profit every month, the idea here is you can own more properties and make your profits over
time. When you rent a property out, you are building equity using your tenant's money. Add up the costs related
to the property, including a small amount for repairs and any utilities you plan to pay for. This is a safer way
to invest in Real Estate and can net you very high profits.
Another way to determine if you should flip or rent is if the market is growing. Does the area have a lot of new
construction? Are there new industries moving in? Is the location near an urban area, with plans for an existing
public transportation system to the city? Properties located in these "growth" areas almost always net the largest
gains over time.
In a growth market, you can make money flipping a house, but you may be able to make considerably more money
if you rent it out, build equity, and sell it for an even higher price at the optimum time. Even if you buy
yourself a vacation home, you can make money down the road if you hold on to it, and you can rent it out as a
vacation home or to tourists when you do not plan to live there.
It's Not Just About the Bottom Line
When deciding whether to flip or rent out a property, assess the market, do the math, and then consider your
own interests and abilities. The perfect flip is not so perfect for those who have no construction or renovation
experience, and being a landlord may not be a role you wish to take on. In the end, it's about what's best for
your pocketbook, and what's best for you.
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