Making money by investing in real estate is very smart and it can help you to grow wealth rapidly. There are two basic ways that most people start out in real estate. You can either rent out houses to make a steady income or you can flip houses to sell them for a profit. How do you decide between flipping houses and renting them out?
The Pros and Cons of Flipping Houses
Flipping houses is a great idea and many people find this to be the most practical way to make huge profits. You can potentially make large profits in a short amount of time if you go this route. Most of the flips that you’ll be going after can be finished within three to six months and you can make a huge return on your investment in some cases. Some dedicated real estate flippers are able to make more than $100,000 per year, but not everyone is going to make this much in profit.
There are some dangers associated with flipping houses to become aware of, though. For example, you’re going to be paying higher taxes on properties than you would if you were buying rental properties. You’re also going to have to deal with the whims of the market and things could go wrong even if it seems like you’re making solid speculative choices on which houses to flip. If the value of a house decreases due to certain factors, then you could be left in a very bad position.
The Pros and Cons of Rental Properties
Rental properties can be seen as a much less risky option that will allow you to enjoy the constant cash flow. You’ll have money coming in each month and the taxes that you will need to pay will be much lower. It’s also possible that the value of the property will grow over time due to normal appreciation in the market. Combine this with the fact that it’s less risky in a recession and you’ve got yourself a very safe real estate investment choice.
The problem with this is that it does take a lot of effort to be a landlord and you’re going to need to maintain the property. Sometimes dealing with tenants can be tough and you might even have issues where tenants aren’t paying rent on time. Vacancy rates can hurt your profits as well and you want to do your best to ensure that someone stays in the property for as long as possible. This is still inherently safer than flipping houses, but there are some risks involved and you need to consider them before coming to your final decision.