Is it better to buy a property and rent or buy and sell?
Friday May 20th, 2016
This depends on a couple of things. First, how experienced are you in investing? For beginner investors, the simple answer is a fix-and-flip is usually better because buying and holding is overwhelming.
Second thing is money. What can you afford? Fixing a house and selling it immediately should give you a high ROI in a short time. Unlike buy-and-holds, it’s not like you have to wait a couple years to gain appreciation or rent out for a couple years to pay the mortgage. It’s by no means a get-rich quick scheme, but that is generally what happens and gets better with practice. So again, the simple answer is a fix-and-flip because of the higher return if the process is done a short amount of time.
However, fix and flips cost a lot of money. You have lots of different costs – rehab, inspections, property tax and more. Would the selling price make enough revenue to cover your costs and loans and a profit – this can be very tricky if you have obtained the property from a lender and from your own money.
Buying and holding means a steady income and you are buying equity by putting the income toward your mortgage payment. So you’re able to own a property and have extra monthly income, eventually. This process takes longer but when it comes to sell, the appreciation should be significant because of inflation. Besides the long-term
returns, there are other benefits of a buy & hold like getting income every month like tax deductibles,and lowering your interest rate by having the tenant essentially pay for it.
This process does mean becoming a Landlord. Are you able to handle that and do you have the time for that? Even if you hire a property management company, that is another cost. If you could manage your first property on your own, then hire manage companies for future properties, which would be better because you wouldn’t take such as hit in expenses from your first investment.
No matter which route you go with, you can do invest passively or actively – meaning, there are ways to complete this with your heavy involvement or with real estate companies or syndicators.
The decision really comes down to what strategy you prefer. If your main concern is knowing which makes more money, then look at the neighborhood’s rental rates and your costs and determine if it produces cash flow. Likewise, look at listing prices and actual selling prices and your rehab costs and determine if there’s an appreciation value. What looks better??