Flipping VS Renting Houses – Find The Best For Your Investment Strategy
Flipping vs. Renting houses is one of the questions that most real estate investors ask Noble Sky International.
Of all the articles and guides on investor tips for investing in real estate, the foremost question is which is better – Flipping vs. Renting houses?
Our article compares these two distinct real estate investment strategies, flipping vs. renting houses.
You may want a short answer. Which is the best?
My challenge to you would be,
- What are your financial goals?
- Which investment strategy is better suited to your lifestyle?
We will explore real estate investment property as you learn the difference between an active and passive income.
First things first, let’s look at why you would choose to invest in properties, especially U.S. real estate.
That in itself is a good question.
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Articles & Guides, Investor Tips For Flipping VS Renting Houses
Summary: This article compares two different real estate investment strategies; Flipping VS Renting Houses.
You will learn the pros and cons of each, the difference between passive and active income, and the investment strategy best suited to your lifestyle and aligns with your financial goals.
Why Invest in U.S. Real Estate?
Have you heard of this phase, “Invest In Property – Invest In Your Future?”
Nothing could be more logical than buying land.
When you invest in properties, you own the land.
“Buy land; they aren’t making it anymore.”–Mark Twain.
Real estate has long been considered a solid investment, and for a perfect reason.
Millionaires say real estate is still the best investment you can invest now.
Residential real estate investment is an ideal source to build a portfolio for inter-generational wealth that generates cash flow income.
And this is the reason why American homes are gaining ever-increasing interest from retail investors.
Just to get started, here are seven reasons why investment in residential real estate makes sense.
People always desire a home.
When people can’t afford to buy, they rent.
Residential properties can make income year-round.
The suitable investment will make property prices appreciated and provide Cash Flow.
Real estate offers unlimited opportunities.
You can buy real estate that makes a profit.
If you want safer and more predictable returns, invest in properties, especially if you don’t have the stomach for stocks.
Real estate provides an inflation hedge because rental rates and investment cash flow usually rise as frequently as the inflation rate.
The equity created in your property portfolio provides a good base for financing other investment opportunities.
Instead of borrowing to invest capital (i.e., buying stocks on margin), investors can borrow against their equity to fund other projects.
The tax-deductibility of mortgage interest makes borrowing against a home attractive.
Residential real estate, rental homes, and Airbnb produce immediate Cash Flow for owners.
The Difference Between Flipping VS Renting Houses Is Not Investing
Let look at the approach.
An active income is something you require to do the work over and over repeatedly to be paid.
For example, your job, if you are employed.
A passive income is something you set up one time, and the process you have in place generates monthly Cash Flow.
Flipping VS Renting Houses – Which approach performs best for you?
At Noble Sky International (Noble Sky), we get this question at every webinar.
Many will think this is a long-term debate to find the ultimate size fits all solution.
The truth is that the right for you depends entirely on what your financial freedom goals are.
That, coupled with the time frame you have in mind, makes the difference whether you want to do just one deal or have multiple projects going on simultaneously.
Both Flipping and Renting houses have their unique pros and cons list.
With so many variables, the most important is how much of your gross profits going toward expenses and taxes?
Flipping VS Renting Houses – Should You Buy and Hold Real Estate or Flip Properties?
Many of us have heard of the Buy and Hold Real Estate strategy.
For this age-old strategy, an investor purchases a property and holds on to it for an extended period.
Some are known to hold the same property for the duration of their loan.
Others hold it until the next generations as a long-term investment.
Property Prices in Asia 50 Years Ago
Few of us would remember how much property cost when our grandparents started.
Back in the day, real estate was something that wealthy people owned.
It was not quite as hot a topic as it is today with the millennials starting investing.
Kuala Lumpur Property and Land Prices 50 Years Ago
According to EdgeProp.my, in 1957, a good part of the Klang Valley was enveloped in lush plantations.
The areas are Kampung Tunku, Taman Tun Dr Ismail (TTDI), Kelana Jaya, Subang Jaya and Section 14 in PJ.
Historical Home Prices in the USA
While the historical property prices half a century ago in Asia are scant, the U.S. is data-driven, and we can easily find the comparatives.
The table below shows the Monthly Median Value in the U.S. from 1953-2021 with Inflation-adjusted prices.
Investment Lengths for Flipping VS Renting Houses
We can look at two years for the short term and five years for a long time for investment lengths.
But first, let’s take a look at your returns.
Return On Equity (ROE)
The return on equity should be at the top of every sophisticated investor’s list.
ROE considers your total equity, especially equity built up over time.
It measures your cash on cash returns against that instead of your initial investment.
However, most investors look to Return on Investment (ROI) instead.
Return on investment (ROI)
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment.
Or it is used to compare the efficiency of several different investments.
ROI tries to directly measure the return on a particular investment relative to the investment’s cost.
You buy a property and have $200,000 in equity.
As your property appreciates by 3% each year, your cash flow remains the same at $20,000 per year, but your return on equity decreases.
Your cash flow can remain the same while you build up equity in your rental property.
You may have had a solid initial return on investment, but that number will decrease with each year.
What you have now is a captive” equity that you’ve created in your rental project.
You can choose to either refinance or sell the property to put that capital into play.
The next thing you can look at is the BRRRR strategy.
Long Investment Length
A long-term investment horizon is for real investments that an investor expects to hold for ten or twenty years, or even longer.
The most common long-term investments are retirement savings.
Long-term investors are typically willing to take more risks in exchange for greater rewards.
Short Investment Length
For a relatively short investment length of 2 to 5 years, you will need to buy a property below the market value to make a good ROI.
While we can’t go back in time to get the property at prices fifty years ago and get a 908.07% ROI – we can fast forward to the present.
Many aging properties have long passed and lingered over double-digit percentages in ROI.
Depending on the condition and location, property prices are still on the rise.
Some investors are still hoping that prices in their preferred locations will drop — but they have been disappointed so far.
While land scarcity in choice locations affects where we want to invest, enhanced connectivity with highways and the recent work from home – many people are moving away from city centers to stay in the suburbs.
Time In The Market Is More Important Than Timing The Market
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Flipping VS Renting Houses – Active VS Passive Incomes
As we examine the real estate investment strategies you can use to build wealth over time, look at Active and Passive Incomes.
If you are working for someone or working on your business, that is an Active Income.
You produce work that brings in money – working for someone or driving your own business.
Best Passive Income example is the payments you secure from a rental property you own.
Before we answer your next question, let’s look at taxable incomes.
Just like any full-time job, any income earned from both active and passive activities is taxable.
If you trade your shares in a passive income activity or sell a property that generates passive income, you are liable for taxes on personal profits that you make.
What is Active Income (Flipping)?
Active income occurs when you perform work that brings in money.
Passive income is rent payments from a rental property you own.
However, your rental income can qualify as active if you meet the criteria set forth by the Internal Revenue Service.
What is Rental Income?
Rental Income or Income From Letting or even Rent includes money received for using a property for a specific time.
The income includes renting a room in your house, a hall for several hours, monthly rental of a home, or even daily rental as an Airbnb property.
Flipping is Not Investing
Flipping properties and buying (and holding) rental real estate represent two different investment strategies.
According to ATTOM Data Solutions, in 2019, flipped homes accounted for 6.2% of all home purchases in the U.S.
Before you get excited, you need to learn how house flipping works.
Many would-be real estate investors overlook and misinterpret the basics of flipping and end up disillusioned.
Remember, flipping is not investing and allowing your wealth to increase by itself.
Like any new business, you require education, business skills, experience, data evaluation, negotiation skills, and rational judgment to be successful.
Flipping requires knowledge, planning, and business acumen to be successful.
Too many television shows make the Flipping process look fast, fun, easy, and profitable.
Real-life differs from T.V. life–not that simple to buy a home, slap on a coat of paint, resell it and make a considerable profit.
Following well-dressed good looking investors (read actors) make it happen in 2 or 3 scripted episodes is entertainment, not doing the work.
Before you get started, let’s look at the five biggest mistakes and would-be flipper makes and learns how to avoid costly mistakes.
Beginner real estate investors make these common mistakes in undervaluing the cost estimates and time each project calls for.
Another big mistake is overestimating their knowledge and skills.
In real estate investing, patience and sound judgment are vital in a time-based business.
The quicker you turn around and finish your projects, the greater your profits.
How Does House Flipping Work?
Sometimes called wholesale real estate investing, flipping is a type of real estate investment strategy.
An investor buys a property not to live in but to sell it for a profit.
That profit is from a “forced price appreciation” by improving the property or from a “hot real estate market” when prices rise rapidly.
For example, an investor might purchase a run-down home that requires rehab in a “hot” neighborhood.
After making substantial renovations, you offer it at a price that matches the property prices in the area.
Investors who flip properties concentrate solely on buying, fixing, and selling one property after another.
To generate a steady flow of consistent income, they will need to buy repeatedly, rehab and flip.
Like most other investments, one of the ways to make more money is to buy low and sell high.
Rather than wait for capital appreciation, with a buy-and-hold strategy, you will want to complete each transaction quickly to limit the time your capital is at risk.
The focus is on speed rather than getting a maximum profit.
Each day that passes with your completed flip project unsold costs you more money.
You will need to pay the property taxes, insurance, and other costs associated with homeownership.
So, where do you start, and what are the pitfalls to watch out for?
First, limit your financial risk and maximize your return potential – don’t overpay for a home.
You need to know the property’s value on the market compared to the other homes sold in the neighborhood.
It would be best if you had a clear understanding and estimate of the repairs or upgrades’ costs before buying.
Lastly, you need to know upfront your minimum profit for your investment.
If the property you’re looking at does not meet the minimum profit baseline – move on to the next property.
Remember, this is a business, and the properties are not homes that you will live in but are investment vehicles per se.
With the correct and accurate information in place, you can determine the lowest and highest price you will pay for the property.
Many believe in the 70% rule where an investor should not pay over 70% of a property’s after-repair value (ARV) minus the repairs needed.
The ARV is what a home is worth in the current market after it is fully repaired.
Here’s an example:
If a home’s ARV is $200,000, and it needs $30,000 in repairs.
The 70% rule means
$200,000 x 0.70 = $140,000
You only pay a maximum of $110,000 for the home
$140,000 – $30,000 = $110,000
After repairs, you sell it for your profits
$200,000 – $140,000 = $60,000
To calculate, use Return on Investment (ROI) Calculator
Top 5 Must-Haves For Flipping Houses
If you are thinking about flipping a house, you need to know that this is a small business that requires money, time, research, skill, and an enormous effort.
If you’re looking for a way to get rich quick, you could end up losing your last dollar.
Even when you get every detail right, the unprecedented changing market conditions like the COID-19 Pandemic could change things out of your control.
These are the five mistakes to avoid if you are thinking about flipping a house.
- Not Enough Money
- Not Enough Time
- Not Enough Skills
- Not Enough Knowledge
- Not Enough Patience
I Don’t Have The Cash Upfront
Real estate is expensive.
If you think you can make a lot of money a low or NO money down, it just means you’re taking a bank loan and paying interest.
Every dollar you spend on interest inadvertently adds up cuts into your profits.
According to ATTOM Data, the average gross profit on a flip in 2019 was $62,900.
You need to factor in the rehab costs.
You need to factor in the combined cost of property acquisition, holding charge, and rehabs before you can make a profit.
Some of the big-ticket items include:
Kitchen and Appliances $25,000
Bathroom remodeling $10,000
Property tax, insurance, utilities $5,000
A 10% Contingency costs
If you find an unexpected structural defect or problems with permitting and approval, these will cause delays and need more money.
Even after you overcome all the financial hurdles of flipping a house, remember you need to pay capital gains taxes, which chip away at your profit.
I Don’t Have The Time.
Flipping houses is a time-consuming process.
Research can take months before you find and buy the right property.
Once you take possession of the home, you’ll need to invest time to fix it up.
All your evenings and weekends are lost to inspections during demolition and construction if you have a day job.
If you hire a tradesperson to do the work, you still need to supervise the activity.
The costs of hiring others reduce your profit margins.
Once the rehab is complete, you’ll need to ensure the property complies with applicable building codes and schedule inspections.
If it doesn’t, you’ll need to spend more time and money to bring it up to code.
Before selling it, you need to spend money to stage the property and show it to prospective buyers.
Next, you may spend plenty of time commuting to and from the property to meet with prospective buyers.
When you use a real estate agent, you need to pay a commission.
Time is a commodity that you can’t get back.
So, it makes more sense for most people with a day job to earn a steady paycheck with no risk and enjoy their weekends off.
I don’t have the technical knowledge or skill.
The real money in house flipping comes from sweat equity.
That is why skilled professional builders such as carpenters, plumbers, electricians, and roofers often flip houses on the side.
These tradesmen have the experience, knowledge, skills, and network to find and fix a home.
If you’re a handyman who can install bathroom fittings, add in a deck, enjoy laying carpet, hang drywall or reroof your house – you have top skills to flip a house.
On the other hand, if you have no idea what a Phillips-head screwdriver is, you’re better off paying a professional to do the renovations and repairs.
While this will reduce the odds of making a substantial profit on your investment, at least you won’t injure yourself trying to learn.
According to ATTOM DataSolutions, 245,864 single-family homes and condos were flipped in 2019.
I Don’t Have Enough Knowledge.
Picking the right property in the right location and paying the lowest price may seem ideal, but do you know?
Can you expect to find a $60,000 home in a neighborhood of $100,000 homes that you resell at $200,000?
Or find a $10,000 property and sell at $100,000?
As far-fetched as this may sound, the second scenario may be probable if the entire neighborhood has $100,000 homes.
However, you may not get the property for $10,000 in the first place.
You could find such property is in a dilapidated state that no one wants to buy.
And even win it at a Tax Deed Auction, which is at $30,000, but you will probably need to put in substantial rehab work to bring it up to code.
Even if you get the deal of a lifetime—getting a foreclosure home dirt cheap, not knowing which renovations to make is critical.
You need to know the applicable tax and zoning laws.
You also need the business acumen to know when to cut your losses and get out before your project becomes a money pit.
As a beginner real estate investor, you compete with big companies and hedge funds by flipping homes in select markets.
They are the fierce competition powerhouses with data and knowledge.
So if you don’t have the research skills and know-how, you could win a property that is a natural lemon that no one else wants to buy.
Not Enough Patience
Beginner real estate investors rush out to buy the first house that they see.
As Professionals, Noble Sky takes their time and waits for and only guns for the right property at the right price.
With a U.S. Team on the ground, we get accurate estimates and hire the best-priced contractor who makes a bid.
Professionals rely on a network of pre-arranged, reliable contractors.
Beginners try to do everything themselves, including trying to sell the house.
Professionals hire a realtor to help sell the house as soon as possible instead of waiting for the highest price.
Beginner investors expect to rush through the process, slap on a coat of paint, to earn a fortune.
Professionals understand buying and selling houses takes time and that the profit margins are sometimes slim.
The Difference Between Flipping Vs. Renting Houses
Before you decide between flipping houses vs. renting, breaking down the difference between Active Income (Flipping) and Passive Income (Rentals) is good.
Passive income is money you receive every month from your investments.
Regardless of where you are or what you’re doing, that income keeps coming.
An example of passive income would be owning a rental property and receiving rent checks every month.
Active income is earning money through day-to-day work.
As soon as you stop working, income stops coming.
An example of active income would be the money you make at your day job and income from flipping a house.
Flipping is Not Investing
Flipping is not investing simply because while you can earn a lot of money flipping houses, you have to work on the business.
While you can earn good profits over a short period of time, Flipping a house requires a great deal of work.
However, finding a good property for a fix and flip is not easy.
You need to have high expectations and be patient.
Even if you’re not doing the labor to fix the house, you will still need to monitor and run the project yourself.
Coordinating the trades and contractors, getting your plans approved by the city, buying insurance, setting up a timeline and budget, etc., all take time, focus, and energy.
You spend your time chasing deadlines to flip a house. That is why it’s considered active income.
When you invest per se, you expect an additional income or profit without doing much work.
Investing is committing money or capital to a business endeavor or stocks and buying real estate.
In a nutshell, house-flipping is a business rather than a direct investment.
If you plan to keep your day job and flip houses on the side – you need to know that most or all of your “free” time is spent working on the project.
Before becoming a house flipper, the best thing you can do is learn how to flip houses and make a profit.
The Pros and Cons of Flipping
While many of us may think of flipping as an extraordinary way to produce a high return in a short time frame, say every 9 to 15 months, there are both pros and cons to consider.
When you clearly understand the house flipping strategy, you will be better educated to know if the pros outweigh the cons.
Before you move forward with this strategy, let’s consider both sides of the coin – the Advantages and Disadvantages of Flipping.
Advantages of Flipping a Property
Before you run out and buy a home to flip, take the time to weigh the benefits (and the risks) of Flipping Houses.
Potential to Produce a Good Profit
The most evident reason for flipping a house is to make money.
For businesses and investors that operate full-time, flipping homes is a profitable industry. You make substantial returns on your money and profits almost instantly, provided you have the right contacts and circumstances.
At Noble Sky, when we buy property up to 80% below the market value, what you gain is instant equity or capital gains.
Even though it takes a lot of time and money, you can learn valuable experiences flipping a house.
When you buy homes and materials, you get to hone your negotiation skills.
Managing your time, delegating and monitoring tasks, and holding people
accountable translates to learning the business from the ground up.
In the process, you learn about construction and real estate.
Rehabbing Homes is Rewarding
Even if you’re only interested in flipping houses for the money, you will quickly learn that there are other rewards.
When you rehab a dilapidated old home, you’re giving it a new ‘lease’ on life.
You’re taking a community eyesore and creating a new house for a family to make into a home.
You get to improve the quality of life on the street and in the neighborhood.
Quicker Returns on Your Investment
The quickest timeframe on a house flip is around nine months.
Noble Sky generally times each flip project to be between nine to 15 months.
As each project has its own set of challenges, it is safe to average the timeframe on each house flip to be around 12 months.
Keep in mind that this is average.
With this, your capital is tied up for a shorter period than buy-and-hold properties.
If this is your first experience flipping a property, you can expect to encounter a few bumps in the timeline.
Some of these setbacks may well extend your rehab timeframe and put the property on the market again.
The faster you can convert a home, the greater your rewards on return on investment (ROI) potential.
No Long-Term Property Management
When the rehab is complete, one of the best exits to flipping houses is to stage the property and put it on the market.
Once you sell the property, you don’t have to worry about the home anymore.
You don’t have to worry about maintaining the property, finding tenants, or collecting rent checks.
You cash out and are free to reinvest your capital (hopefully with a good ROI) into the next Flip project.
With good healthy profits and benefits, there are sometimes risks that you need to take.
The foremost in mind is can this replace your current income from a job?
For many people giving up a steady, consistent income is a lot harder than they anticipate.
Unless your full-time job is to flip houses, you will need to give up some of the things you take for granted.
As you look at the opportunity cost of flipping, the possibility of making a lot more money is always attractive.
However, you need to figure out if the money you earn through flipping would be sufficient to replace your full-time income.
Just like your job or any other business you run, flipping is a source of active income.
You will need to constantly look for the following property, buy, rehab, sell, repeat.
As soon as you stop flipping actively, that lucrative income comes to a complete stop.
Before starting your next Flipping project, you need to factor in the extra cost of buying and selling.
The transitions and closing costs can add up and cut into your overall return on investment when you buy and sell a home.
If you are self-employed you will pay the highest income tax – in the USA this can be as much as 43%.
As such, you can expect to pay an additional 15% on top of your taxes.
If you own the property for less than a year, you will need to pay capital gains tax rate based on your earned or “ordinary” income.
There’s a vast difference between short-term and long-term capital gains tax rates.
To determine what triggers capital gains tax and how to calculate or save, you can use the 2020 Capital Gains Tax Calculator tool to estimate your after-tax investment gains.
Is real estate flipping worth it?
Yes. When you buy with cash and have no interest payments to worry about, you can decide to sell when the price is right.
If you need a bank loan, the financial risk of house flipping is not worth it.
While flipping can earn a lot of money in a relatively short period – this is a task you need to do over and over again actively.
Even though you may get less income upfront, a rental investment property will perpetually generate good income.
Rental Property is Passive Income
If you are interested in creating intergenerational wealth, rental properties will create passive income easily for you.
Your rental property will create passive income.
If you hire a property management team (PMT) to handle the project, you don’t need to be actively involved.
What does a property management team (PMT) do for a landlord?
The PMT’s role is to help you achieve the best financial return on your property.
They do this by working hard to help you get your property ready for quality tenants who will pay rent as quickly as possible.
Your PMT will handle the tasks, which includes
- Guidance On Where To Purchase
- Marketing Know-how
- Tenant recruitment (finding quality tenants)
- Tenant Management (collect rental)
- Arranging Maintenance (day to day issues)
The Pros and Cons of Renting
If you like consistent income and don’t mind smaller amounts, you can own a rental property instead of flipping.
While flipping produces a lump sum of cash, rental property is like a Golden Goose.
It keeps on generating excellent monthly returns.
If you hold the property over several years, you can sell it for capital gain later.
Let’s discuss the benefits and risks of renting.
First of all, Buying rental property is a long-term investment.
Everyone can do with extra passive monthly income.
If you are injured and unable to work, your active income will stop.
However, if you have a rental property, you would still be receiving monthly income from your tenant.
You can become financially independent with passive income and grow your portfolio of rental properties.
Eventually, you can build lasting wealth, retire, and, best of all, leave a legacy income to your loved ones.
Capital Appreciation Over Time
Over time, a property bought in the 50s has the potential to increase many times.
If you purchase your rental property in the right place (location) at the right time (at a discount), you reap the benefits.
Rents and cash flow are guaranteed to rise with inflation.
The longer you keep your rental property, the more equity you will build over time.
The value of your rental will increase in value annually. Your rental income will increase too.
If you purchased during a buyer’s market and sell during a seller’s market, you can enjoy a sizeable return.
However, at Noble Sky, we don’t time the market.
With our networks in the U.S., we have helped out investors and partners to buy below-market value properties from motivated sellers.
With the current seller’s market and a housing shortage in the USA – this is the best time to sell based on the simple economics of supply and demand.
Investment Property Has Tax Incentives; Flipping Does Not
When it comes to taxes, the U.S. is a tax haven.
It is not how much you make but how much taxes you pay that determines your profits.
Rental property owners can save money as they get to write off expenses on a long list that includes costs on
- property maintenance
- property repairs
- Expenses incurred on rent collection.
- Expenses incurred on rent renewal
- milage travel to and from the property
- cost of a property manager
- insurance premium
- property tax
The single most prominent advantage is writing off the annual depreciation of your asset.
Depreciation on assets can potentially save you thousands of dollars a year in taxes.
By convention, most U.S. residential rental property is depreciated at a rate of 3.636% each year for 27.5 years.
Only the value of buildings can be depreciated; you cannot depreciate land.
The Risks of Rental Property
Risk of Vacancy
Risk of vacancy means circumstances beyond the owners’ control – this happens when the rental property cannot generate the anticipated profit.
Circumstances can include sudden political and economic changes.
In recent times, during the initial Covid-19 Pandemic.
So, what happens when you can’t find quality tenants and your property remains vacant for months?
All investments carry some degree of risk.
When you invest in a rental property, you need to factor in up to 25% vacancy.
In some cases, it can be challenging to keep your rental filled for long periods.
The expected vacancy is between one to three months per year, which inevitably eats into your budget.
If you are paying a mortgage, you will need to afford to pay up to three months a year if the property is not rented out.
You’ll want to set aside more money away before buying your rental property, preferably with cash.
Unless you bought the property in cash, you would be strapped to keep up with the mortgage when the rental is vacant.
With a PMT, landlords and property owners get to minimize the chance of a rental property sitting vacant.
Not all Rental Property is Passive
While many of us buy into the idea that a rental property generates passive income, this, in essence, is not a completely hands-free investment.
Before buying your property, you need to research the best markets and find rental property deals actively.
You purchase it, manage any rehab or repairs, then you get to market and manage the property yourself.
There are some caveats to this “passive income” idea as your rental property is both an investment and a part-time job.
The hours you spend to acquire and any updates or repairs, etc., adds up.
Even If you pay yourself for your time, you can’t compensate for your weekends working for the business.
To make your rental property a viable investment, consider hiring a PMT to handle the mundane day-to-day tasks.
These will include
- finding quality tenants
- securing rent checks
- responding to maintenance requests.
Strategies for Flipping Houses
For flipping, there are two primary strategies.
The first is to purchase a home or apartment below the market price.
The second is to buy a distressed property or a true fixer-upper.
Investors using the first strategy need to identify properties where owners cannot maintain, manage, or over-leverage and deal with the risk of defaulting on their loan.
Investors looking into fixer-uppers should be prepared to invest additional capital for Repairs, Maintenance, and improvements.
The idea is to increase the value of a property by fixing it up, turning around, and selling it.
Rental Real Estate Investing
If you are thinking of becoming a landlord, you could buy a property to rent out.
Before you do that, you need to calculate your rental earnings.
At Noble Sky, we research the market value to determine the average rents with other properties similar to the target market.
We determine the rental you can charge to know upfront how much cash you can make before investing.
If the numbers look favorable, you can choose to move forward with the investment or pass.
Aside from monthly cash flow, the most lucrative part of owning rental properties is the buy-and-hold strategy.
In addition to the monthly income you receive, the longer you hold on to your rental property, the higher equity you can build.
Flipping is Your Business; Rentals are Your Investments
As discussed above, flipping is more of a full-time day job than a straightforward investment strategy.
If you plan to be a Flipper and do all the work yourself, you can expect to put in countless hours as an unpaid construction worker.
Aside from putting in new floors and windows, you can expect to remodel the bathrooms and change the cabinets in the kitchen.
Other works can involve changing the entire roof or even strengthening the house’s foundation.
Even If you plan on hiring a contractor for the rehab work, expect to spend a great deal of your time overseeing and managing the project.
You will need to order materials, ensure the deliveries, coordinate the works, and get approvals and permits.
That is a long list as well.
After that, you need to stage the property, arrange for viewing and market your new home on the market.
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Use Flips to Generate Cash for a Rental Property
If you can’t afford to purchase a rental property immediately, you can consider starting a flipping project first.
You can use the money you earn from Flips as leverage to buy a rental property to hold.
Once you have a few properties, investors can borrow against their equity.
The strategy is called the BRRR method.
BRRRR stands for “buy, rehab, rent, refinance, repeat.” Best known as the intelligent investor’s investment cycle.
You get to leverage other projects with your current ones by using BRRR.
By Leveraging your equity, the BRRRR method makes it a much more cost-effective option for financing.
Flipping VS Renting Houses Conclusion
After reviewing the benefits and risks of strategy, you now have a good idea of the direction that works out best for you and your financial goals.
There are many benefits of flipping houses versus renting houses in the USA.
Flipping houses is more profitable than renting, and the best aspect is the immediate capital appreciation that comes from flipping.
While the disadvantages are difficulties in finding suitable properties for fixing and flipping.
Another major disadvantage is the time it takes to sell a property.
Hence unless you have deep pockets, it is also challenging to get a steady paycheck as the process can be stressful.
Flipping property is cyclic, and you need to find rehab and repeatedly flip properties.
For this reason, some people decide to turn to rent as a business alternative.
While you don’t have to worry about managing the property, letting it out, or finding renters – your biggest worry is finding buyers.
Only after you sell or flip your property, you’ll be able to earn a new income.
As a beginner investor, you can do this business in any market.
Of course, you’ll need more cash if your location is expensive.
If you are new to this, make sure to prepare for unexpected expenses or repairs that can lower your final return.
You must also be aware of the time it takes to earn your money.
If you’re considering flipping houses or renting homes in the USA, there are several benefits to this business model.
With renting, you get a steady stream of passive cash flow income.
You can hire a property manager to deal with the hassle is finding and dealing with tenants.
Often, you don’t have to spend a lot of money on repairs; hence renting can be less risky.
You may not have to remodel the kitchen and bathroom change doors and light fixtures for rental properties.
However, renting will take longer, while flipping will cost more in the long run. And, once you’re done selling the flip, you’ll only have a single profit.
Renting a house is more profitable. When a home is sold, the owner must pay a capital gain tax.
The time required to sell a home can be three to six months.
Moreover, real estate appreciation is dependent on market conditions, and a slump in the market can result in a lower property value than when purchased.
If you can afford it, you can hire a facilitation company like Noble Sky International as the property manager to manage the property.
Flipping VS Renting in summary
Flipping is the best strategy if you prefer to work hands-on, get your hands dirty, or find that you thrive in a construction environment while getting a quick return.
If you prefer to keep your full-time job and want an effective property management team to deal with the day-to-day management, – rental property is the best fit for you.
Ordinary people have found success in both flipping houses and renting them out, and becoming investors.
Read our articles for more information and resources about real estate, including where, when, and how to invest, other helpful articles, and investment tips.
If you like to do both but don’t have the time to manage your portfolio, you can reach out to Noble Sky.
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Historical Home Prices: Monthly Median Value in the U.S. from 1953-2021
DISCLAIMER: Any information or advice available on the Noble Sky International website is intended for educational and general guidance only. Noble Sky Core LLC and Noble Sky Institute Pte. Ltd. shall not be liable for any direct, incidental, consequential, indirect, or punitive damages arising from accessing or using any of the content available on this channel. Consult a financial advisor or other wealth management professional before you make investments of any kind.
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