Jumping into real estate investing, the possibilities are truly endless. Investing in property is generally seen as a very safe move and an economic decision that has a high chance of returning a stable profit long term, but that doesn’t mean that every type of real estate investing will have the same profits or attributes. And when considering these factors and others, many investors will ask themselves: should I be buying a property to keep, or flip? Here’s a few thoughts on the benefits and drawbacks of each route.
The Pros and Cons of “Flipping” a House
When investors buy property to “flip,” they do so with the goal of making as much money as quickly as possible by buying low and selling high, and cashing out a real estate investment in the short term. Buying houses to flip takes a lot of skill, as you will have to be great at spotting properties with good potential as well as handling the repairs and improvements that will turn a property into a higher value asset to “flip” for a profit. But when you’ve got it down, there are some huge benefits to flipping houses.
For one, the profits are a lot more immediate, whereas most real estate investing takes a while to really feel profitable. When you flip a house, you are able to immediately pay off the mortgage you took out to buy it, and walk away with a tidy sum. It may not be as much as you’d make over the course of a property’s life time if you held on to it for other things, but it is immediate and the rewards can be sizable. Plus, flipping houses can be just plain fun: there’s a bit more risk involved in the high and fast payouts, but a lot of people thrive off of that and let it fuel them.
On the other hand, it should be noted that “flipping” houses has a lot of inherent risk. If you end up buying a property for more than you should, you may actually lose money after improving it to the point where it can be sold. And flippers can fall victim to the market, and end up sitting on properties that they don’t want for a long time. Aside from that, there is a lot of hands on work involved, and “flipping houses isn’t really a way to earn a passive or semi-passive income like some other form,s of real estate investment can be. It takes a lot of work, and for newer investors who haven’t flipped houses before, the learning curve can be steep.
The Pros and Cons of Buying a House to Keep
Whereas flipping houses looks a bit more like investing in stock markets or other assets that you buy with the explicit intention of quickly selling, buying a house to keep and hold on to as an investment is a whole different ball game. When you buy a property to hold, you have to realize that in the short term, you will need to pay mortgage payments. For most investors that buy houses, renting the house out to a qualified tenant will allow you as an investor to make mortgage payments and collect a small profit on the side from the rent income.
But the real value of buying a house to keep as an investment pays off over time. While markets do fluctuate, historically the price of property is going up and up, and you will be able to charge higher rents over the course of a property’s life time. Once your property is all paid off, you can even retire in it yourself, sell it for a nice profit, or continue to rent it and just see higher profit margins from your rent income. All of these options are great, and there are a lot more you can take if you decide to hold on to a house you have bought as an investment.
The biggest drawbacks of holding on to an investment property and renting it are that sometimes, rental income won’t cover all of the expenses that can add up being a landlord. You will have to pay a property manager to deal with things like maintenance and collecting rent, unless you have the time and flexibility to do that yourself, and everyone you need to pay will cut into your margins. Plus, maintaining a property and paying taxes will cut into your profits as well. When markets dip, investment properties may be held on to as a loss in the short term.
Owning Versus Flipping?
There’s really no “right” approach to real estate investing, and which route is right for you depends on what you are hoping to get out of your investing. If you want to take a higher risk for a higher profit margin in the short term, research flipping, and if you want a steady income and ownership of a long term asset, look into buying and holding a property to rent as an investment.