Real estate investments are diverse and an investor can’t excel at all investment ideas. To decide which one is suitable for you, you have to carefully assess what each of those investment ideas involves and its specifics. Although there are more real estate investment ideas than rental properties and house flipping, in the following paragraphs we will concentrate on these two. This will help you decide easier which idea is the best for you and how should you approach it.
Flipping or Renting?
This is the real question for many real estate investors. To make sure that you pick the best idea, you have to fully acknowledge the importance of both areas and make everything about your personal goals. Understand your goals better and you’ll have an easier time deciding. In real estate investment’s case, it all comes down to what type of income the property will generate. Passive or active.
Obviously, passive income comes without much efforts on investor’s part. The money keeps coming when the investor is on vacation when they handle their day-to-day jobs and families.
Active income is that type of income that requires some efforts and involvement to generate money. As we age and retire, unless we have an exceptional retirement plan, you need to keep making money. But considering the fact that you don’t have the same energy and stamina as you age, a passive income source is significantly better than an active one. Besides, when you decide if you want to become actively involved in this type of investments, you should think of your career as well. Ask yourself the following questions for a more successful and accurate assessment.
- Do I have enough money to retire now?
- If I’m not ready to retire yet, do I want to change my current career path to real estate investments?
If you don’t have enough money to retire and you’re not willing to become a full-time real estate investor, then you should pick the passive income option which, in this case, is the rental property investment.
Understand What Flipping Houses and Renting Properties Really Mean
Many house flippers pride themselves on being real estate investors. While this is not completely untrue, this option is more like a mix between investment and speculation. Truth is, house flipping can help you earn a lot of money even though if you have to find funding for flipping, in the beginning. However, you should make sure that you fully understand that this is NOT a passive investment solution. You have to EARN that money, meaning that you have to put some efforts into the process.
You have to first invest money in your flip property to make it more appealing to the market and potential buyers before you generate more profits. Plus, you have to speculate and engage in sometimes risky financial transactions in the hope of profiting in the future from potential market fluctuations. A trader simply puts his money into an asset (be it stock or real estate properties) and expect to get a profit.
This is why most house flippers should understand that house flipping is more similar to a business rather than an investment. However, you still have to find reliable private money lenders for house flipping if you don’t have the necessary capital for those.
Just to be clear, both ideas can be profitable, but they require different levels of efforts to generate income. Plus, a phrasing differentiation should be clearly made: flipping houses is speculating; renting properties is investing.
Rental Properties – The Best Alternative for Those Unwilling to Quit Their Jobs
For those who are unwilling to give up their current jobs, rental properties are the best solution that there is. You have to buy a rental property, bring it in inhabitable condition if it isn’t already and rent it. Then you will have money generated on a monthly basis, in the most passive way out there. This won’t eat up your time and energy or even money and you have a certain income source to boost your profits.
Becoming a Full-Time Real Estate Investor Allows you to do Both
If you just can’t decide between the two investment options, you might want to consider quitting your current job if the satisfaction level is low and dedicate your time to real estate investments. If you decide to do it, you can easily handle both: house flipping and rental properties and enjoy higher profits that you have ever expected to. You will enjoy the perks of both, plus the extra money that will enter your bank account on a monthly basis. You should know that real estate investors have higher incomes than those working a 9 to 5 job. If you want to make money fast, then real estate is for you. When you think of rental properties, think of them as a permanent source of income which can be aided with the help of flipping properties. Make sure that you get a better grasp of the taxes involved by each type of investment.
Rental Property Taxes Vs. House Flipping Taxes
Investment properties have tax incentives while flipping houses does not. Usually, you will have to pay in taxes somewhere around 25%-43% on flipping income, as compared to investment income which is usually taxed at 15%. In some extreme cases, when the investor makes a lot of money out of their investments, the income is taxed at 20% of the income. In investment properties’ case, you can write off a lot of additional expenses, which will help you enormously.
There is not a clear conclusion which one of the investment alternatives above is the best when it comes to real estate investments, but depending on your lifestyle, current job situation and other variables (like the investment money you have available at the moment) you can easily discern and select the best solution for your own instances. In some cases, you can even mix them both and boost your income significantly.