The answer to this question depends entirely on the focus of your investment strategy. One of the more popular real estate investing strategies is to buy, repair, flip, repeat at first to generate enough money to investin further rentals. But the big question you have to look at, are you in the business for the “quick buck” that flipping brings you or are in it for long-term continuous income?
On the Flip Side
The biggest reason the “flip” investor is in the business, is for the fast turnover money. The process is supposed to be quick, easy, and profitable. After all, you are investing your money in a house being sold well-below its actual value, which after adding the cost of minor repairs and upgrades, the plan is to sell it at a profit. However, the process takes time, andyou may not realize the profityou had hoped for, it all depends on the market.
There are of course inherent risks with flipping houses. One of the more common issuesis the discovery of more expensive repairs thanwere initially seen. With each repair or upgrade, your profit margin shrinks. How long before you reach the point at which you are upside down in the property? What happens if the market drops or when you do finally sell it, the selling price is lower than you expected? Thankfully, this doesn’t happen very often, but it is a risk you have to keep in mind with every investment you make.
To Rent or Not to Rent?
The other option, to flip a few houses just to get started and create enough of a nest egg that you can afford to stop flipping and go for the long-term investment of rental property. The idea being that the rent you charge covers your mortgage payments and allows you to make a moderate profit on the property.
Keep in mind that the idea behind a rental property is not to make a hugeprofit on each property, but instead to keep the profit margin (the difference between the rent you are charging and your mortgage payment) at a moderate level. The way to create the highest level of profit possibleis to invest in multiple properties.
Rental properties also have specific tax advantages such as depreciation. Along with this, you can deduct for things like accounting fees, management services, travel expenses, certain improvements, and numerous other expenses. All of these and more can be used to help lower your rental property income for tax purposes.
And in the End
In the end, it is up to you to decide which form of investing is better for you. If you like the fast buck turn around, flipping is the answer. But, if you are in the market for a long-term investment that you can use to create retirement wealth, rental properties represent an excellent investment opportunity, andthe tax advantages are nothing shortof stellar.