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 to succeed and excel at it: which property to purchase and how to manage it?
The investment question of whether fixing and flipping or buying and holding properties is a wise real estate decision does not have one straightforward answer. Instead, the choice of one plan over another comes from an explicitly crystal-clear, strategic plan that considers your future investment and financial goals in the context of present real-estate market opportunities.
Fundamentals of Fixing and Flipping
Typically, Fixing and Flipping can serve as a potential source of funding for other real estate investments. In fact, many utilize earnings from their Fixer-Uppers 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 garner a profit. It is important to note that productive Fix and Flip houses are relatively difficult to find. In addition, it is also challenging to make money when taking into account all surprise expenses.
Finding a house inexpensive enough to make a profit is typically the biggest challenge when opting to fix then flip a property. With the gradual improvement in our market, owner-occupied purchasers are facing difficulty finding simple, productive deals. As such, it can be even more challenging for someone to find another house that is inexpensive enough to purchase, fix, and flip. Besides construction costs, you incur when purchasing a flip, you also have to endure carrying costs, selling fees, and additional expenses.
Fix and Flip vs. Rental Property Financing
Short-term financing is costly when you do not have enough capital to purchase a Fix and Flip outright. 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. In addition, banks and financial institutions prefer long-term debts, as they will be receiving interest benefits for a considerable time after the note is authorized. Because lending institutions will not receive interest payments on a Fix and Flip as they would for a long-term rental, they charge home buyers more fees and interest.
Fix and Flips require top-notch repair work to reap worthy profits and, subsequently, the buyer bears significant costs. With a rental property, renters are often less picky about property features, like the roof, furnace, structure, and plumbing. They are neither personally tied to the apartment nor worried about maintenance since they are not responsible for any disrepair or breakdown.
Investors on a flip pay heavily for a home they will not own for a long-term period. They will get an expert inspection in order to make sure each and every aspect of 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. These are just some costs related to a Fix and Flip versus a rental that an individual has to consider when making real estate investments to make profits.
Instant Profit vs. Long-Term Earnings
Long-term rentals provide you with a monthly cash flow as long as you own and rent out the property. 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 your chances for the house to appreciate in value and decrease in a mortgage. In addition, you also have the potential opportunity for 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.