Investing in real estate can yield some pretty nice returns if you do it right. Now that you’ve decided you would like to invest in real estate, you need to decide which investment strategy works best for you. Those two strategies are renting and flipping. Let’s go through some of the pros and cons of both strategies and you can decide which route is best for your financial goals.
Pro – Ongoing Monthly Income
Renting is a great way to bring in additional money each month. Sure, you will have to pay for some expenses such as the mortgage and occasional repairs, but whatever you have left over from the rent money you receive you can use for other things. You could invest the money or save for something you want such as a family vacation.
Pro – Increase in Home Value
Depending on the home you purchase and the location, your home value you should increase over time. You can also increase what you charge for rent as rental costs rise in the surrounding area. If you decide to sell the home at some point, you will see a nice return on your investment.
Con – Unable to Find Tenants
There could be times when you simply struggle to find people to rent out your property to. You want to make sure you find quality tenants that will be able to afford the rent, so you don’t have to worry about constantly nagging your renters for money or keep track of missed payments. In these cases, you will need to make sure you have enough money saved up to cover the mortgage until you can fill the vacancy.
Con – Time Investment
If you plan on handling the rental property yourself instead of paying a property management company to do so, you may have your hands full. You will eventually have to deal with repairs and maintenance around the home. As stated previously, you might have a difficult time finding renters and will need to spend time searching. Managing a rental property can definitely feel like a part-time job.
Pro – Faster Returns
When you rent out a property, you get consistent income over a long period of time, so your returns are gradual. When you flip a property, you are holding on to the property only for enough time to get it ready to sell and once it sells, you should make a nice profit.
Pro – No Need for Property Management
You don’t need to worry about getting tenants or making sure the property is intact once it’s sold. Property management is a big part of renting out your property but with flipping, you won’t have to worry about those long-term headaches.
Con – Varying Income
Determining what properties are worth investing in to flip takes a lot of research. At the end of the day, making a solid profit once you sell the property is what matters most. There may be times you buy a property and run into some unforeseen and costly repairs that cause you to go over budget resulting in minimal or even no profit.
Con – Taxes
One of the variables you need to take into consideration when thinking about buying a home to flip are the taxes. When flipping a home, the income you make is taxed like self-employed income, which is about 15% higher than your normal taxes. Make sure you keep that in mind when budgeting to determine what your profit will be.
Are you considering purchasing a rental property or a property to flip? Check out firstweber.com and take a look at our listings!
First Weber sells real estate throughout Wisconsin: Metro Milwaukee and Southeastern WI, South Central Wisconsin/Greater Madison, Central Wisconsin, Northeast Wisconsin, Western WI, parts of MN, Michigan’s UP and Wisconsin’s great Northwoods. You can start searching for Wisconsin real estate and Wisconsin real estate agents at firstweber.com