Flipping or Renting your Investment Property
So you want to start investing in real estate but not sure what to do? Well let’s go over two different popular approaches to real estate investing. Flipping a property is where you purchase a property that needs some work, whether it is a little or a lot, then fix the property and sell (flip) it. It could be an easy flip that just needs new carpets and some paint or you might need to strip the entire house to the bones and start fresh. The other approach is to purchase a property and rent it out to tenants that pay you monthly for living there. There are positives to both of these ways of investing and it mainly depends on what goals you want to achieve with investing.
We will go over flipping first. What you want to do is to find a property that is undervalued and is cheap enough to offset what it will cost to repair and still make a profit when you sell. You can find the property yourself if you know what you are looking for or you can get a real estate agent to help you find one, either way you will most likely need the assistance of a realtor to help you through the purchase process. Before you put an offer in on the property, you will need to do a visual inspection of it and figure out what needs to be fixed. If you have no idea how to do this part, you can get the help of a general contractor who can help you examine the property and estimate what it would cost to repair. Then you need to do your math to make sure that you can make money. There are several different resources online that can make this part easy as well as ready-made forms that can help. The bottom line here is that you need to add together the purchase price, repair costs, and all costs and fees associated with purchasing and selling real estate and make sure that your projected sales price is more than that total cost. Also, your projected sales price needs to be backed by a market analysis or similar, that your realtor can assist you with. This method of investing is very effective in growing your net worth as you do more and more flips, making a profit on each one. If you are able to do this on the side, while you work at a job, and take all of your profits and re-invest them into your next project, you will be able to multiply your gains very fast.
Rentals have the power to create passive income that pays you month over month, year over year. “Buying and renting a property provides an ongoing stream of revenue, without quite as much risk as buying, fixing and flipping a property.” (Rossenfeld) Now it isn’t always as simple as sitting back and collecting money… at first, but there are things you can do to be able to retire very comfortably with a few rental properties. You will need to do the same thing as you do with a fix and flip, by looking for a property with numbers that work. Again, there are many tools online that can help you with formulas that you will need, but the bottom line is that your property needs to make more from the rental income than it costs you to pay for the property; ie. Mortgage, insurance, taxes, and repairs. You can find a property that makes over $2000 a month in rental income with a mortgage of $900, then you, my friend, are making $1100 a month just because you own a piece of property. Again, there are more factors involved with this and I will go into more details in a later post.
The last thing I will give you here is my suggestion to use both of these strategies in building your real estate investment portfolio. Save up some cash to purchase a small property that needs a little work and that you can fix and flip fairly easy. Do this a few times where you have a good chunk of change and go purchase your first rental property (with less than half of your cash). Now you have a monthly passive income and you still have cash to repeat this process over and over again, building your portfolio.
Rossenfeld, C. (2015, January 23). Investors Prefer Flipping Over Renting. Retrieved January 28, 2015, from http://www.globest.com/news/12_1031/orangecounty/auctiondotcom/Investors-Prefer-Flipping-Over-Renting-354567.html