Renting Out Vs. Flipping and Selling

     So, you already know that you want to invest in real estate. A lot of investors are looking to buy properties at highly discounted rates that need a little bit of work. Once you buy, is it smarter to flip a property and sell it or would it be better to rent it out? 

     First rule of thumb for any investment is buy at a discount.  Before entering into any financial venture, you want to realistically (not just hopefully, in all around best case scenarios) estimate what your return will be versus what you have to put into the property to get it’s new appraisal value.  When you buy low it puts you at a better leverage point financially to come out on top.  That being said, you want to make sure the low price your getting won’t be undermined by the amount of work and capital you have to put into the property.  Time and condition are two major factors in real estate investment return.  But, getting ahead of myself, before finding the perfect property for it’s purpose, ask yourself what type of investor you want to be.

     Flipping houses and becoming a landlord requires completely different mindsets and temperaments.  It’s similar to the tortoise and the hare.  The hare has tons of boundless energy hopping from one project to the next while the tortoise is satisfied with the stability of monthly cash flow.  In our story, they both win the race. 

     While the biggest impressions of career house flippers is that they’re risk takers, there’s a good amount of risk that goes along with renting as well.  One of the front runners is being able to handle evictions.  If you rent for long enough you will run into this problem eventually and may even be sympathetic to their case.  Single mothers, elderly tenants and every likable character in the book, it's likely you’ll have to evict somebody one day.  Another risk is managing your liability.  Flipping a vacant home carries less liability than if a renter associates an accident or injury to your property.  Handling the liability disputes takes finesse and careful planning.  In many cases, landlords can make their properties into separate entities so one lawsuit doesn’t bring all of your investments down.  Careless or irresponsible tenants aside, as a landlord you will never quite be “on vacation.”  If there is a problem in one of your properties, you need to be available to handle any emergencies.

     With all the risks in mind, it is also important to note that land owning is one of the most historical sources of wealth. Being able to pass the land and business down from one generation to another provides a legacy that you can’t quite get with flipping.  Having a stable flow of income among other investment projects can provide a buffer by quite literally, buying you time.  If you are a young first time investor, perhaps it is not a priority to build your rental portfolio. Indeed, as your investment projects expand, it could provide the mortar for your other capital investments.