With the increase in foreclosures, many real estate investors are weighing the advantages of flipping a home versus buying rental properties. Each method has advantages over the other, but only one method is able to create an instant cash flow. The rush to get into real estate is causing some confusion with new investors that want to capitalize on the hottest trends without understanding fluctuations in the real estate market. By comparing the advantages and disadvantages, you will quickly learn the truth if flipping homes are better than buying rental properties.
Flipping Homes: The Advantages and Disadvantages
A great deal can be found on distressed properties or recent foreclosures in real estate. Many homes that were once owned by individuals or families are in fairly decent shape and often do not take much money to fix up. Hiring contractors, home inspectors and buying new appliances is part of the investment that is made when flipping houses. The sale of a rehabbed property can result in a substantial increase to your net worth.
Disadvantages to Flipping Houses:
• Large Amount of Cash or Financing Needed Upfront
• Hard to Sell Without a Realtor
• Expensive to Advertise Property Until Sale is Made
• Capital Gains and Taxes Due Upon Sale
• Must Live in Home to Gain Tax Credits
• Home Value Can Fall Rapidly Decreasing Profits on Sale
• Licenses, Fees and Closing Costs are Due Upon Purchase and Sale
Rental Properties: The Advantages and Disadvantages
One of the things that are great about rental properties is the monthly cash flow that is generated from rent payments. As long as someone is renting the home, the money received each month is taken in as profit. These homes can be purchased without the help of a realtor in many instances. The construction required to fix up a rental property often depends on how long the house was vacant before purchase. The cost of a rental property is often less expensive compared to purchasing a traditional home.
Disadvantages of Rental Properties:
• Property Management is Needed
• Advertisements Can Be Expensive to Find Renters
• Damage to Home Must Be Fixed According to Landlord Laws
• Cannot Live in an IRA Purchased Rental Home
• Rental Income is Lost When Renters Leave
• Rent Must Be Adjusted According to Tenant Income
• Strict Taxation on Rental Income
Making Smart Investment Decisions to Build Your Wealth
The pros and cons of flipping homes and buying rental properties must be considered before you make your investment. Many investors find that rental properties are easier to handle for a first or second investment. As you gain more experience in real estate, you could venture into flipping homes with the hope of making a quick profit on the sale. The best advice to use is to study the market, educate yourself at all times and know how to spot a good deal. Making wise investment choices is how real estate moguls built their fortunes and is the same technique that you can use to build your investments.