Some investors find that flipping houses have been the perfect go-to option for their investment style. Others prefer the more laid-back ways of collecting an income through renting their properties instead.
Each strategy works. Choosing which one will work for you is going to depend on your goals. Let’s break it down.
Flip It
When you choose to purchase a property to flip, you have to put in a great deal of work. Physical labor to fix up the house or oversee a project, hiring and coordinating with contractors, dealing with plans and permits, buying insurance, and on and on. There is so much work that goes into flipping a house that it is less like an investment and more like a job. And it brings active income because as soon as the work stops, so will the money.
Despite all this work, there are a few pros and cons that come with the flipping of a property, such as:
- If you move swiftly, you can hold property and flip it within 6 months, leaving you with a quick return on investment.
- You don’t have to worry about managing the property long-term.
- Paying taxes is a big deal for those who are in this business - expect to pay more than you normally would.
- There is no guarantee on how much you will make when you flip a property and the income itself is very inconsistent.
Rent It
Investing in a piece of property and choosing to rent it out can be a great method of obtaining passive income. Sure, you have to buy the property and make it presentable for renting - which means your costs upfront may be a bit higher. But, once you get it rented, you will receive a consistent income for as long as you choose to rent the property.
The pros and cons of renting your property are:
- Consistent monthly passive income. You do not have to work to continuously receive this monthly income.
- Real estate values tend to increase over time due to inflation, as do rental rates. So whether you choose to sell your rental property down the road or increase your rental price, you can expect to receive an increase in income.
- Rather than paying extra taxes that you see with flipping property, there are many tax incentives for owning rental properties.
- On the downside, having a rental without a tenant is a problem. This is one of the biggest risks you will face.
- It does take some work to find an ideal rental property, as well as making any repairs and such on the property.
Most rental property investors opt to hire a property manager to handle their rental properties. This frees up time for investing or even just working a regular job while feeling confident your rental property is in good hands. Property managers are the experts at finding high-quality tenants (reducing your vacancy rate) and handling lease signings, inspections, maintenance and repair, and so on. With a property manager, investing and renting truly bring a passive income.
