Real estate investments can be a great way to make money, even with the risks involved. There are several strategies for investing in real estate. Here’s 2 of the big ones:
1) Rent it: buy a property and rent it out to tenants.
2) Flip it: buy a property, fix it up, and sell it for a higher value.
So which strategy is better? The truth is, there isn’t one right answer. We’ll discuss the pros and cons of both strategies so you can decide which one aligns best with your goals.
Renting
If you choose to rent out your property, this will usually be more of a long-term investment. Ideally, your tenant’s payments will cover your mortgage payment plus some additional profit for you. If you bought the property outright with no mortgage, you will be receiving month-to-month cash flow.
The housing market can be unpredictable and occasionally brutal. However, if you maintain tenants in your rental, you can ride out the rougher times in the housing market. This will allow you to wait to sell your property until it has significantly increased in value. When the housing market is undesirable, you are less likely to be in a position where you feel rushed to sell your property.
Managing your property and tenants can present challenges. First of all, you need to make sure your neighborhood allows rentals. Some HOAs have limits on the number of rental homes in the neighborhood or don’t allow them at all. It is also important that you pay attention to the location of the property you purchase. Factors like the quality of schools, entertainment, transportation, and employers nearby all can influence the value of the home. Once you are approved to rent and have tenants, there’s a chance your tenants may miss payments, damage your property, or cause other problems you have to deal with. Completing a thorough screening of prospective tenants can help reduce this risk. You will also be responsible for certain maintenance and repair costs to the home, like plumbing and heating issues. These repairs could take away from your monthly profit on the property.
There are some great tax benefits that come along with owning a rental. These benefits include deductions with your mortgage interest and insurance. However, these tax codes are not set in stone and could be modified in the future.
If you have the time and management skills to be a landlord, having rental properties may be a great investment option for you. Of course there are risks, but that will come with any investment. Just make sure to weigh the potential profit of having a rental home with the potential profit from other investments, like stocks and bonds.
Flipping
Watching Fixer Upper may have lit a fire in you to “flip it.” If you choose to flip your property, you will be making more of a short-term investment. Most people who flip their properties complete the process within 3-6 months, though it can take longer. You’ll need to have eye for the potential of a house. A real estate agent can help you with the selection process.
If you flip a house, you won’t run into some of the problems that people who rent their property do, such as finding tenants and dealing with the difficult ones. You get the property into your hands and out of your hands into someone else’s all within a short time frame. Plus, you get to see an amazing transformation process take place on the home! Click here for DIY home project tips to transform your home.
Keep in mind that flipping a house is no easy feat. You will likely need to hire contractors to complete many of the projects. This will take coordination and patience on your part. It can be pricey and there may be more problems to fix than you initially thought. You will likely need to be more involved in the project, but only for the short time it takes to complete it. The housing market is always changing, so you do run a risk of the home dropping in value from when you bought it, even with the improvements you have made. However, this risk is minimal since the flipping process is usually completed in a relatively short time frame.
There are many fees involved with buying and selling a home, so you will want to be sure the property is worth the investment. Taxes can also increase if you own properties for less than a year. This is because you will forego the long-term capital gains tax rules (which are usually better than short-term capital gain tax rules).
You can gain a lot of valuable skills in management, construction, and real estate by flipping a home. Who knows, maybe you’ll end up starting your own show about it! There is definitely some hard work involved with a project like this, but the profit you can make is worth it.
What will you do?
Now the lingering question…will you rent it or flip it? Or perhaps do a combination of the two? If you have experience in renting or flipping houses, we would love to hear your story and feature you! Connect with us on social media @wpinsure or send us an email service@wpinsure.com. And don’t forget- we are here to help you find the best rates in insuring your assets during the process.
