Deciding between renting and flipping a residential investment property is an important choice for real estate investors. To determine the best strategy for your needs, it’s crucial to understand the key differences between these two investment objectives.
If you opt for flipping, you’ll purchase a property at a discounted price to make quick improvements to increase its value. The goal is to resell the property at a higher price and generate a profit. Flipping, also known as real estate trading, typically involves the following characteristics:
- Short-term investment focus: Flippers aim to achieve a rapid return on investment.
- Holding period: The property is held for a relatively short duration, typically 3 to 4 months, but it can vary depending on market conditions.
- Targeting undervalued properties: Flippers seek properties that are either undervalued or located in hot and upcoming areas to maximize their chances of selling quickly at a higher price.
- Risk considerations: Failing to sell the property as planned can have negative consequences, especially if the investor doesn’t have sufficient cash reserves to cover mortgage payments. Conducting a thorough pre-market assessment is crucial.
- Renovation investments: Flippers often invest in renovations to enhance the property’s value and expedite the selling process.
If the fix-and-flip strategy seems too challenging or risky for your preference, you may consider the buy-to-rent option. This approach is more suitable in real estate markets with low buyer activity in the short term. Key characteristics of buy-to-rent investors include:
- Long-term investment focus: Investors in buy-to-rent properties seek sustained returns over an extended period.
- Holding period: The property is held for a longer duration, and the investor generates income through rental payments.
- Flexible location choices: Buy-to-rent investors can target properties in various areas as long as the neighbourhood offers high rental income potential or is projected to experience rent increases in the mid-term.
- No immediate need to sell: Instead of selling the property, investors rely on rental income to cover any mortgage expenses.
- Property maintenance: Maintaining the property in optimal condition is essential to attract tenants and achieve a high rate of occupancy.
Choosing between these two real estate investment strategies ultimately depends on your goals and preferences. Which approach do you currently prefer or lean towards?
