To rent it, or to flip it: that is the question. At least, that's what many property investors like you might find yourself asking whenever you review your real estate portfolio.
To help you decide, read this article to know the difference between renting and flipping. We've also listed the pros and cons of both renting and flipping to guide you on which choice is best for you.
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Renting is one of the most common ways you can earn from the properties in your investment portfolio. It happens when you allow occupants, known as tenants, to live in your property in exchange for a monthly fee — rent.
RELATED: What kind of tenants to look for
While many factors go into determining how much you should charge for rent, most real estate investors base their rental fees on the property's market value.
The general rule of thumb is to charge $100 for every $100,000 of your property's value. You can adjust this to accommodate property expenses as well as maximise your returns.
Investing in rental property, in the long run, gives you a chance to earn a steady flow of passive income. As long as you invest in the right kind of property and charge a reasonable rent for it, you can bank on income every month that adds to your wealth-building strategy.
Let's take a look at all the benefits of investing in rental property in detail.
Passive income is money you regularly earn outside of your usual 9 AM to 5 PM job which doesn't require you to be actively involved. While there are many passive income streams you can explore, investing in rental property is one of the most common ways to do so.
Earning from your rental properties is a stable source of passive income. Should you find yourself in need of financial assistance due to sickness or an accident, you can rely on your rental earnings to augment your regular salary.
Passive income from monthly rent helps you build your wealth and attain financial freedom in the future.
The value of rental properties often increases over time. This benefits you as a real estate investor because you can increase your rental income as the years pass, too.
Renting out your property also allows you to enjoy specific tax incentives. YOu can deduct expenses you incur to maintain your property from your actual taxable income.
Being able to deduct property repairs and maintenance fees from your taxable income helps you get more fro your investment and save more in the long run.
While you can enjoy the benefits of owning a rental property, take note that there are also some risks to it. Let's take a closer look at the disadvantages of renting out your property.
With a rental property, there's always a risk of long-term vacancy. Naturally, if your property has no tenants, you won't be able to earn rent from them.
While managing your rental properties might not take up as much time as your regular 9 AM to 5 PM job does, it still requires you to put in a significant amount of work.
While rental property investment can give you passive income, stay on top of all the assets you have in your portfolio. Set aside time in your schedule so you can visit the properties you have and make necessary repairs where needed.
With a rental property, you're buying a house or unit intending to keep it in the long run. This way, you get to earn from your property by accepting tenants who will pay rent.
House flipping, on the other hand, is when a real estate investor buys a house, fixes it up, and sells it right after. Unlike rental properties that are acquired for long-term benefits, flipped properties are purchased to sell them right away.
Making a profit out of flipped property happens when you sell it. Soon after buying the property, you increase its value by making the necessary repairs and the right updates. When all the upgrades are done, you can sell the flipped property at a price much higher than you initially bought it for.
RELATED: When is the best time to sell?
There are two main advantages to property flipping—quicker returns and short-term property management. Here's a quick look into these two benefits.
When you're renting out your property, the income you get comes in small batches in the form of rental income. Property renting is a more long-term way of getting a return on your investment. However, when you sell a flipped house or property, you get returns almost right away. Remember, the faster you can flip a house or unit, the quicker you can earn from it.
Your responsibility and management of your flipped properties end as soon as you sell them. Once they're sold, the person who bought it will be in charge of everything else—looking for tenants, collecting rent, and looking after the property.
As with rental properties, flipping a house or unit also has its disadvantages. Here's a look into the two main cons of property flipping.
Unlike property renting, house flipping is a form of active income. You earn income only after putting in the work.
Because earning from house flipping only happens at the point-of-sale, you run the risk of experiencing times in the year when you won't be making money at all.
The expenses you incur for updating a property you intend to flip can't be deducted from your taxable income. In the same manner, you can't claim any deductions for the profit you make from a flipped property.
While quick returns often attract investors towards property flipping, selling your property breaks one of the cardinal rules of property investing. Opt instead for a long-term property rental strategy that grants you a means to earn passive income.
Renting out a piece of high-value property in a prime location coupled with regular property management will fuel your wealth in the long run.
The choice between property renting or flipping ultimately boils down to your financial capabilities and investment goals, as well as the sort of lifestyle and investment strategy you like to pursue. Review your current resources and see whether you're better off flipping or renting a property.
A9 Property is a team of property specialists helping first-time homebuyers and property investors on their journey into the real estate market. Our weekly real estate blog touches on industry trends, market shifts, and investment strategy, providing you with valuable insight into your property purchase journey. We are experts who specialise in off the plan properties–a popular investment strategy in Brisbane and Australia. Check out our carefully selected portfolio of off-market properties for sale or contact us for an obligation-free chat to discuss the best strategy to start building your portfolio.