So, you have a house on your hands you don’t intend to live in. Maybe it’s an inheritance, or you’ve stumbled across the perfect excuse you’ve been looking for to get into real estate investing.
What you should do with it depends on many factors, but what you want out of it financially should carry huge weight in this decision.
Two of the most popular options for making money in real estate are to upgrade the home and “flip” it back onto the market or maintain it as a residential rental. The investment of time and money into each one is different, and while market conditions should factor into your decision you also need to consider your risk tolerance, available resources and financial goals.
Cash influx vs. steady revenue
Flipping a house requires heavy up-front investment in time as well as money, so not having access to enough of either can shift you pretty quickly into landlord position. But if you find a property where the purchase price, renovation cost and selling price pencil out as expected, you can hit a big payday in a relatively short time. Those tens of thousands of dollars can go toward paying off a nagging debt or be plowed into another business project, whether it’s another house or a completely different venture.
It depends on the house’s condition at purchase, but it usually costs considerably less to bring properties up to rental market standards and find tenants for them. Overseeing a rental usually takes a few hours a week, or less if you delegate that to a property management company. Profits likely won’t be huge, but they can suffice as steady income to put toward the mortgage or other expenses. Rentals also enjoy significant tax advantages.
Risk is the other big divide. There are several ways a flip can go south, including underestimating repair costs and running into a sour real estate market. The rental market is less volatile, and risk is spread out over time.
