Certainly, investing in real estate is a lucrative business. However, it is challenging to be an expert in every aspect of this money making market. Thus, you need to concentrate on one thing to be successful and become potentially good at it.
The crucial decision the investor needs to make is whether to fix and flip the property or hold it to use as a rental property to bring in a passive income. Both options could bring in great profits for the owner of the property. What has to be decided is whether you want to deal with the property short-term or long-term.
Fundamentals of Fixing and Flipping
Typically, fixing and flipping can serve as a potential source of profit with a fairly quick turnaround depending on how much fixing the property needs. Many utilize earnings from their fix and flips to help them fund their long-term rental purchases. Generally, a fix and flip is a house that a real estate investor purchases, fixes up, and sells immediately to profit. Unfortunately, productive fix and flip houses are relatively difficult to find. Also, it is challenging to make a profit on them in certain markets or timeframes.
Finding a house cheap enough to profit after renovations is typically the biggest challenge when opting to flip a property. With the gradual improvement in the market, owner-occupied purchasers are facing difficulty find productive deals. It is even more challenging for anyone to find a house cheap enough to flip. Besides repair costs you bear when purchasing a flip, you also have to carry selling and closing costs.
Financing Expenses of a Fix and Flip
Short-term financing is expensive when you do not have enough money to purchase a fix and flip. Even so, average creditors may charge at least 15% interest with 4% upfront when you buy a home. Compared to fix and flips, long-term financing on rental properties is much cheaper and easier to obtain. Also, banks and financial institutions prefer long-term debts, as they will be getting interest benefits for a considerable time. On the other hand, they will not be receiving interest payments on fix and flips for as long as a long-term rental; thus, they charge home buyers more fees and interest.
Repair Requirements: Fix and Flip vs. Rental Property
Fix and flips require top-notch repair work to get great profits, and, subsequently, the buyer bears significant costs. On the other hand, in some cases, renters are less picky about properties. They are neither personally tied down to the apartment nor worried about the long-term condition of the roof, furnace, structure, and plumbing. They are not responsible for any repairs or breakdowns.
Investors on a flip have to pay heavily for a home they will own for a long-term period. They will get an expert inspection to ensure everything on the property works properly and was well repaired. Although we do not suggest a homeowner skimp on repairs, certain things may require a repair right away on rental properties that must be repaired imperatively on a flip. There are several other costs concerning a fix and flip versus a rental that an individual has to consider when making real estate investments to make profits.
Instant Profit of a Fix and Flip vs. Long-Term Earnings from Rental Properties
Long-term rentals provide you with a monthly cash flow as long as you own and rent out the house. One can also refinance the house upon owning it a year and subsequently take money out. The longer you own a property, the more favorable chances you have of the house appreciating and decreasing the mortgage. Also, you have the potential opportunities for the rents to increase considerably. If you can put off the immediate gratification of the money you make from a fix and flip, you will make much more profit in the long run through rental properties.
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