Certainly, investing in real estate is a lucrative business. However, it is challenging to be an expert in every aspect of this moneymaking tactic. Thus, you need to concentrate on one thing in order to be successful and become potentially good at it.
The investment question of whether fixing and flipping or buying and holding properties is a smart real estate decision does not have one straightforward answer. Instead, the choice to opt one plan over another has to be an explicitly crystal-clear strategic plan, taking your overall investment and financial goals as well as present real-estate market opportunities into consideration.
Fundamentals of Fixing and Flipping
Typically, fixing and flipping can serve as a potential source of earning for real estate investments. In fact, 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 out immediately to realize a profit. Here, you need to know that productive fix and flip houses are relatively difficult to find. In addition, it is also challenging to make money using them by any means.
Finding a house cheap enough to make profits is typically the biggest challenge when opting to flip a property. With the gradual improvement in our market, owner-occupied purchasers are facing trouble in finding great productive deals. In fact, 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 bear carrying, selling and opportunity costs.
Financing Expenses of a Fix and Flip in Comparison to a Rental Property
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. In comparison to fix and flips, long-term financing on rental properties is much cheaper and easier to obtain. In addition, banks and financial institutions prefer long-term debts, as they will be getting interest benefits for a considerable time period. 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, renters are often less picky about properties, as they are neither personally tied down to the apartment nor worried about the roof, furnace, structure, and plumbing – since they are not responsible for any disorder and breakdown.
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 in order to make sure each and every thing on the property works properly and was well repaired. Although we are not suggesting a homeowner skimp on repairs, certain things may require a repair right away on rental properties that have to be repaired imperatively on a flip. There are several other costs in relation to a fix and flip versus a rental that an individual has to consider when making real estate investments with a goal 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 in value and decreasing in mortgage. In addition, you also have the potential opportunities for the rents to increase considerably. If you are able to put off the immediate gratification of the money you make from a fix and flip, you are going to make much more profit in the long run through rental properties.
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