“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt, U.S. President
When it comes to the world of financial investments, there’s no shortage of ways to future proof your wealth: from investing in precious metals and art, to purchasing classic cars and of course real estate. While each of these forms of investment offers a unique set of risks and rewards, few offer the raw potential of investing in real estate. There’s a good reason why it’s been a popular choice for both financial institutions and individuals alike who want to bolster their monthly finances with both sizeable short-term, and consistent long-term, returns. Depending on your interest and budget, you might find that real estate can be more than just a simple investment: it could become a lucrative second career, with a steady passive income. Want to make the right real estate investment? Avoid losing your money by understanding the differences between the two most common ways to invest: renting and flipping.
Pros and Cons of Flipping a Property
Flipping a property is considered the “active” approach to investing in real estate. This can take many forms on its own: from purchasing a diamond-in-the-rough property and fixing it up; or purchasing an existing property and simply holding on to it while you wait for market conditions to change. Typically, most flippers are looking for a property which needs some work and, as such, doesn’t draw much attention from the market or is priced well below market value so it’ll sell quickly. This means one pro is that you are potentially spending less on your initial investment of a new real estate property.
The main draw of flipping a property is the short turnaround time that can often be had, especially when a flipper can complete repairs or renovations, and can get a property back on the market quickly. The risk of flipping properties is twofold: the first is purchasing a property that requires more work than you had initially anticipated; the second is market conditions meaning that you can’t sell the property for as much as you’d hoped. You also have to factor in the cost of the repairs themselves: both for materials and labor, if you’re hiring contractors to do work. A house will need to be prepared both inside and out, so expect to hire landscapers alongside handymen and painters. Want to flip safely? Work closely with an inspector you can trust, who can teach you how to detect “red flags” that might mean prohibitively expensive problems. Want some more advice for flipping first-timers? Check out this HGTV Guide to learn more of the basics.
Pros and Cons of Renting a Property
For those looking to receive a passive income from real estate, renting can be a good option. That being said, this “passive income” doesn’t mean its free money: there is still a lot of work involved with being a good landlord. Whether you’re renting a property as a residential space, or using it as a vacation property online, there are several benefits. Just like with flipping, you could start with a house that needs some work, lowering your initial cost and allowing you to better mold the property from a blank canvas into the perfect rental space.
Regardless of which rental path you pursue, you’ll need to invest time and money into property maintenance and tenant management- which can be stressful and time consuming. If you have the time and skill, or manage to start renting multiple properties, you might even consider hiring someone else to do the regular work for you. Security deposits and well written agreements can help protect you and your property from unsavory renters. As time goes on, both home values and rent have risen steadily, meaning that a property you invest in today could earn you a passive income while also appreciating in value- in five years, you might decide it’s a good time to flip that rental property for a healthy profit!
Conclusions
If you want to invest in real estate, it’s important to understand the risks and rewards for all types of investment, and understand that – while there’s no guarantee of success – there is also a great potential. Protect any real estate investment by contacting a trusted inspector and working with industry professionals who can help you better understand market conditions for resale or even rental potential. The expertise of an experienced realtor is paramount to ensuring you are choosing the right property for your real estate goals.
