Probably the first decision many single-family River Oaks real estate investors make is: flipping or renting? While there are a couple of advantages to house-flipping, most house flippers also face significant risks and frequently make huge sacrifices to get the property ready to sell. On the other hand, buying properties to rent can become one of the best methods to grow real wealth without the risk or sacrifice of flipping – if conducted effectively. We will discuss both pros and cons to understand better why rentals are a better investment than house flipping.
Flipping: The Pros and Cons
For many people, flipping houses is a massive investment of money and energy. The reason house flipping gets the attention of many investors is because of the potential for a big, one-time payoff. And there are some house flippers who have obtained big money.
But that awaited payoff incorporates a pretty big set of risks, beginning with having your money tied up in a flip for as long as it takes to renovate and sell it. You only earn revenue after finding, buying, remodeling, and then reselling the property. For several investors, that suggests your income is limited to the number of flips you can do in a year.
Flipping is also inherently volatile, with various potential difficulties that can quickly eat into your profits. For instance, there’s no guarantee that the bargain property you acquired will appreciate or be valued as much as you wanted once it’s ready to sell. Your income is entirely at the mercy of fluctuations in the real estate market. Rising costs of materials, an insufficiency of qualified service providers, unethical or dishonest contractors, along with other concerns, may all lead to higher prices of your renovations, lowering your potential payoff in the end.
Zillow: A Case Study
For a high-profile example of flipping gone wrong, read the story of Zillow. The corporation agreed to enter the house flipping game by offering to acquire homes for sale and then turning around and selling them at a profit. At least, that was the primary goal. The dilemma is that Zillow could not sell many of the purchased properties, leaving them with 7,000+ homes now worth less than what they paid for them. It’s every flippers nightmare – on a broad scale.
Investing in Single-Family Rentals
The ideal way to lower risk while growing wealth is to invest in rental real estate. Single-family rental homes have proven time and time again to be one of the finest roads to real, long-term profitability. This is owing to a variety of significant factors.
Primarily, one of the main benefits of investing in rental homes is the opportunity to produce short-term cash flows while growing your property values. As your properties appreciate, the payoff when you sell keeps pace with inflation over the years.
There are very few investments that can boast the same! Rental properties tend to be very stable in difficult economic circumstances, allowing single-family rental property owners to maintain a consistent monthly income. There are also many tax benefits to owning rental properties, which can add up to big savings over time.
The need for management is probably the most significant reason why some investors avoid single-family rental homes. While owning rental homes generally takes less time and effort than flipping houses, rental homes still need active management to stay profitable.
The good news is that, when managed right, you can streamline your investment properties and reduce the amount of time they will require of you. When you associate with a quality River Oaks property management company, you can take most day-to-day tasks off your calendar, allowing you to work on growing your investment portfolio.
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