You probably already know that buying a house in need of TLC at well below market value and fixing it up to sell can be incredibly profitable. You might also know that owning properties that you rent out to tenants can be quite profitable, too. Here, you can learn more about these two options, including which is more profitable and which might be the best for you.
The Number One Difference
There are a few differences between flipping houses and renting houses that you should be aware of, but of these, one stands out above all the rest. When you flip homes, you must be active in the entire process. The more homes you flip, the more you earn, but the more time you need to spend managing your projects. On the other hand, when it comes to renting the houses you renovate, you can simply sit back and collect passive income after the renovations are complete.
Some real estate investors believe this to be the other way around; they can pay a construction company to renovate a house, but if they rent that house, they’ll be landlords – and that’s a hard job. Believe it or not, you can pay a property management company to handle the entirety of your real estate investments, including your tenants, just as you would hire a construction company to renovate a house.
All About the Money
If you’re more concerned about profitability, there are some differences between flipping and renting. Flipping homes allows you to make large amounts of money in short order. It can be viewed as a short-term investment as you’re only vested in the property for a short time – from the time you buy it until the time you sell it. Then, you sell and put the money you earn into the next project. You’ll pay a lot more taxes when you flip homes thanks to capital gains taxes, and you’ll be at the mercy of the housing market from one week to the next, too.
When it comes to renting out the houses you renovate, it’s important to note that returns will come far more slowly. However, rather than a one-time profit, you’ll gain access to a long-term cashflow that can provide substantial passive income over time. In fact, many of the world’s most profitable investors built their wealth in this way; though it is certainly slower, if you can get to a point where your profits exceed your expenses, you can live entirely on the passive income. You’ll also get some tax breaks by deducting expenses related to operating and maintaining your property, too. However, higher than usual vacancy rates can take a serious toll on your income, so it’s important to consider carefully.
Both fix-and-flip and rental properties can be profitable, and there’s no one universal right answer for every investor. If you want to make money quickly, then a fix-and-flip is probably your best bet. However, if you’re more interested in gaining financial independence and growing your wealth over time, then rental properties are the route to take.
