Should You Rent or Flip?

To flip or not to flip, that is the question. For some people, the idea of flipping a home (or homes) to turn a quick profit is exciting, while for others, the thought of long-term financial gain is a lot more attractive.

Flipping a house involves purchasing a property, renovating it, and then selling it for a profit. This strategy can be a quick way to make a large ROI (return on investment) but it also carries a certain level of risk.

On the other hand, buying a rental property can provide a steady stream of passive income, but requires a long-term commitment as well as the ability to handle the responsibilities of being a landlord.

Two very different real estate investment strategies, each with their own pros and cons. Which strategy is right for you? There is no right or wrong answer, it all depends on what fits your lifestyle and aligns with your financial goals.

The decision of which one to choose also depends on your risk tolerance and level of experience, two very important factors when deciding between flipping a house or renting it. Why? Because depending on which you choose will affect your ability to handle the risks and responsibilities that come along with each strategy.

If you are considering jumping into the world of real estate investing but are unsure which approach best fits, we’re breaking down each one so you can have a better understanding of the unique advantages and disadvantages associated with each.

Flipping Houses

This route can be a high-risk, high-reward strategy. It requires a significant amount of capital and a willingness to take on the financial risks associated with renovating and selling the property.

Something to keep in mind, flipping a house is not investing because while there is the opportunity to make a lot of money, you have to earn it (i.e renovations). Flipping a house takes a great deal of work and often a great deal of patience.

Regardless of whether you’re doing the renovations yourself, or contracting out the jobs, you’re still required to take an active role in making sure all of the work gets approved and completed correctly.You are spending both time and money when you flip a house.

Pros include:

Potential for a large profit – Flipping homes can result in substantial profits if the renovation and sale are done correctly.
Potential for appreciation – Real estate tends to appreciate over time which means by the time you’re ready to sell the value of your property could increase, resulting in a higher ROI.
Tax benefits – Flipping homes comes with a variety of tax benefits such as depreciation and capital gains tax.
Forced savings – As a flipper, you have to save money for repairs and renovation of the property which can be considered as forced savings.
Flexibility – You can choose the properties and renovation projects that you want to take on, giving you more control over your investments.

Cons include:

Risk of renovation costs – Flipping homes often requires a significant amount of renovation and remodeling which can be both costly and time consuming.
Risk of market changes – While the real estate market’s fluctuations can work in your favor, they can also work against you if the value of the property does not increase as expected, or even decrease.
Risk of default – If the renovation takes longer than planned, the interest costs on your loans (if the purchase was not all cash) can add up quickly and eat into your profits.

Rental Properties

On the other hand, buying and renting out a property is generally considered a lower-risk investment strategy. It can provide a steady stream of passive income, but it also requires long-term commitment and the ability to handle the responsibilities of being a landlord. This includes finding and vetting tenants, dealing with repairs and maintenance, and handling evictions if necessary. An investor who has a lower risk tolerance, or who is less experienced in dealing with the responsibilities of being a landlord, may find this strategy more challenging.

Pros include:

Regular passive income – As a landlord, you will receive a regular stream of income in the form of rent from tenants.
Appreciation – Real estate tends to appreciate over time which means the value of your property could increase, resulting in a higher ROI.
Tax Benefits – Rental properties come with a variety of tax benefits such as depreciation, mortgage interest deductions, to name a few.

Cons include:

Maintenance and repairs – As a landlord, you’re responsible for all of the upkeep (ie repairs) the home requires. This can be costly and time-consuming, especially if you own multiple properties.
Risk of vacancy – There is always the chance that your property may be vacant at some point which means you will not receive any rental income during that time.
Risk of default – There is always the off chance tenants may default on their rent, which could lead to losses.
Liability risk – As a landlord, you are responsible for the safety and condition of the property, so you are exposed to liability in case of accidents.
Risk of eviction – There is always a chance you may have to evict tenants who fail to pay their rent or violate the terms of their lease (if you have one in place) which can be a legal and time-consuming process.

Before deciding to rent or flip a home, it’s important to carefully evaluate all of the pros and cons, assess your tolerance for risk, your level of experience, which strategy you’re more comfortable with, and decide which strategy aligns best with your lifestyle and goals.