Flipping vs Rental Property
Flipping and rental income investment are two different methods of making money in real estate investment. There is no standard and concrete decision on which will bring more returns than the other. Each of the two offers different opportunities and it is up to the investor to learn what makes more to them. One of the best advantages of investing I real estate is that it offers investors great chances to accumulate wealth as well as have steady cash flows over time. There are various reasons in which one can invest in real estate including but not limited to;
1. In comparison to stock exchange market that makes people feel secure to invest in, real estate has better and predictable returns.
2. Real estate acts as a shield when inflation occurs or what business people call inflation hedge. The rental rates increase with the same rate as the inflation rate.
3. Real estate investment also acts as a source for other types of investment.
Each of the two ways is explained below, with its pros and cons.
Flipping of a property
Flipping of a property is a method of real estate investment that an investor buys a property not with the intention of using it except selling it for a profit. The holding time of the property is a short time and is mostly considered to be around six months. Flipping means being a temporary owner for a short period. During this period, the buyer repairs and renovates the house.
Pros of flipping
Flipping is one of the ways that you can return your capital invested faster. It realizes the gains faster making the capital available for other purposes.
It is considered as a faster method of investment. This is because it is considered as a way of investment that holds capital or rather exposes the capital into risk for a short period of time.
Cons of flipping
It can have house costs in short term as you may want to impress the buyer that would have been easier being solved if it was long term.
Transfer costs occur within a short period of time and could lead to high hidden cost as it is a faster activity.
This involves buying property and using it by renting it out. The sole purpose of buying such a property is to rent it out.
Pros of Rental property
Steady income- this involves having continuous cash flow as the tenants mostly pay in a monthly basis.
Increase in property value- the more you hold a rental property with proper repairs and renovations the high the chances of increasing in value of the same property.
It acts as an inflation hedge-when there is crisis in the economy, the property is slightly affected.
Cons of Rental Property
Vacancy costs-any expense related to rent out property means that they have to be taken care of. If any of the spaces/houses is not occupied, the owner of the property will have to incur the costs associated there.
Management issues-when having a rental property, it comes along with having management responsibility. If an investor does not have such a skill, it is likely to have conflicting issues with occupiers.
All in all, both methods are ways of investing in real estate industry and it all depends on your goal and purpose.