Ham or turkey sandwich? Regular or DoubleStuf Oreos? Netflix or Hulu? We live in a world that’s constantly filled with choices, some easier to decide on than others (the answer is always DoubleStuf). But when it comes to the choice between renting vs. flipping a property, which is best?
Luckily there’s not one option that’s inherently better or worse. You just need to figure out whether renting or flipping is best for you. We’re laying out five considerations to help you make your decision.
#1 What makes sense for the area you’re buying in?
We’ll keep on saying it ‘til the cows come home: location is everything. Location is one of the foremost factors to keep in mind when deciding between renting vs. flipping. Even if you determine that you’re taking the landlord route (or vice versa), location will influence whether you take on a property in the first place.
|Locations Best Suited for Renting Out
|Locations Best Suited for Flipping
|– College towns
– Near attractions and vacation hotspots
|– Rural areas
– Suburbs, particularly single-family homes
This list is not exhaustive, and there are plenty of exceptions — the type of property also plays a big role. For example, a cabin in the middle of nowhere would likely be more successful as a flip than a long-term tenant rental. A condo near a lightrail station, not too far from a downtown area could be great for renting or flipping.
Location also influences the work on your end. Fixing up a cottage two hours away might sound like a great project, but your cash flow will stagnate, compared to if you rent (or flip) a house two blocks down. More than anything, in terms of renting vs. flipping, think about what makes the most sense in your area (and do your real estate due diligence).
#2 How much work do you want to take on?
Flipping takes a ton of work upfront. Renting out is an ongoing commitment. You can hire people to do both (renovate your property or hire a management company, respectively) but doing so will cost you.
In the span of a year, hiring a team of renovators to flip will undoubtedly cost you more than using a property management company. Many flippers take matters into their own hands to save money, but it’s a massive time investment.
That being said, if you bought a fixer-upper and sold it within a year — even within two years — and everything went smoothly, you’d likely make way more than renting it out in the same amount of time, even without a property management company. But if you don’t have the time, skills or money to hire someone else and you lack the ability to crunch the numbers as to how to make a profit, flipping won’t lead you to the green.
#3 How much money are you willing to spend?
Does spending tens of thousands upfront or taking out an equivalent loan in order to properly renovate feel like way too huge a risk? If so, you’re better off renting out a property. Keep in mind, many soon-to-be rental properties still need renovation (but you can avoid this by picking a property with little room for improvement).
#4 How do you want to make money?
If you’d rather make a lump sum, flipping is the right move. If you like the idea of incremental income over an extended period of time, renting out is for you.
One thing to note with renting out: owning a rental property doesn’t mean you’ll have steady income every month. Buying new appliances, replacing the roof in 10 years, a lack of renters — these are all income factors that don’t affect flippers.
#5 What are your current circumstances?
There are a couple things we mean by this:
- Do you (and/or does someone you know) have the skills to fix up a property?
- Do you have the time to fix up a property?
- Are you currently able to fix up a property (ex. recovering from a recent surgery)?
- If you answered no to any of those questions, are you able to pay an outside company and still likely turn a profit?
- Is there a great fixer-upper you have in mind?
- Do you have the time to find tenants?
- Do you have the time to manage your property (ex. responding to minor fixes, lockouts, etc.)?
- If you answered no to either of those, can you afford to pay a property management company?
Remember that — as is true with any investment — there’s risk in flipping and renting. Don’t make decisions based on how you’ll theoretically make bank in the future. Be realistic about what you can manage or else this investment will turn south.
Is it better to flip or rent?
That’s for you to decide! The renting vs. flipping debate has pros and cons on both ends. Regardless of your decision, RealtyHive has a number of listings that can set you on your investment property journey. Connect with motivated sellers in one of our time-limited events today!