You can take a variety of approaches if you’re interested in investing in real estate. Flipping and leasing are two of the most common options. Flipping houses involves buying them, renovating them, and reselling them for a profit. Leasing involves purchasing a home and renting it out to renters. Over time, profit is earned through rent and the increase in value of the home. How do these two approaches differ financially?
There are pros and cons to buying a home to flip and sell for profit. You will be able to earn a return on your investment sooner if you take this approach. Within a relatively short period of time, it is possible to purchase the property, complete upgrades, and sell the property. The investment project is complete once the property has been “flipped” and sold. Flipping a home will yield varying profits depending on the price, the cost of renovations, and the market. According to this article from New Silver, the average net profit for a house flip is $30,000. This approach has the disadvantage of requiring funds up front to make initial investments, as well as a higher risk of loss. You may lose money if you purchase a home at a high price, spend a lot on renovations, or are unable to sell the home at the right price. The home may also suffer from unintentional damages that could be costly to repair. In addition to the purchase price, it is important to estimate the cost of any renovations and repairs. This approach also depends on the strength of the sales market, since the turnaround time should be as short as possible. Investing involves risk, as with any other endeavor.
Purchasing a home to lease has its pros and cons as well. When you purchase a home, you can list it for rent and earn income. (Get free rental analysis of your investment property here) Over time, the home’s value will increase and you will earn a steady income. Tenant management can be time-consuming and involves regular expenses. It is important to consider HOA dues, mortgage payments, taxes, insurance, and management fees when calculating expenses. Cleaning, changing locks, and basic maintenance will cost some money up front. For the home to remain in good condition, routine maintenance such as furnace maintenance, chimney cleaning, and basic repairs are necessary. Carpets and paint may also need to be replaced at some point. In this way, the value of the property is preserved and neglect-related damage is prevented. In addition to new exterior paint, a new furnace or water heater, or new appliances, other expenses may occur over time. It can sometimes be challenging and time-consuming to place and manage tenants. Providing a home for others involves a certain amount of liability, as each city and state has different laws. There is an average return of 7-8% on rental properties (see this page for more information on how to calculate your profit, cash flow, and other statistics). Renting is a longer-term investment than flipping a house, more of a marathon than a sprint, depending on having tenants consistently. When the market dips, you can keep your investment, and sell when the market reaches its peak. It takes more time, patience, and knowledge of the rental market for this method of investment to yield a higher profit than flipping a home.
The workload associated with leasing a property can be taken on by a professional property management company. Keeping our clients’ homes rented and earning income is one of the main goals of Colorado Realty and Property Management, Inc. We maintain a vacancy rate of less than 1%. In addition to basic maintenance, we focus on preventative maintenance. It doesn’t matter whether it’s the interior or exterior of the house. Your rental property is protected by Colorado Realty and Property Management, Inc. and your tenants are kept happy.
We hope this guide helps you decide on what type of real estate investment is best for you