Property flipping and leasing are two common tactics. Flipping is the process of purchasing a property, improving it, and then reselling it for a profit. Leasing, on the other hand, entails acquiring a property and renting it to tenants for a profit. This article discusses 10 points to consider when choosing between flipping and leasing as real estate investment strategies, to help you decide determine which one is right for you.
1. Market conditions: Your investment’s success might be significantly impacted by the situation of the local real estate market. Flipping homes could be a more successful alternative in a hot market with high demand for properties because purchasers are willing to pay more for renovated homes. Leasing may be a safer option in a weak market with fewer purchasers because you may continue to make rental money while you wait for the market to turn around.
2. Location: The property’s location can have an impact on your investing approach. While leasing may be more lucrative in suburban or rural areas where rental properties are in demand for families and individuals who cannot afford to buy a home, flipping is typically more successful in urban areas where there is a high demand for renovated properties.
3. Time commitment: Managing the renovation process and supervising the sale of the property requires a lot of time, when flipping a house. Contrarily, leasing demands continuous property management and upkeep but might not require as much effort up front. Before choosing a course of action, take into account your schedule and availability.
4. Financing: Your choice between leasing and flipping might also be influenced by how you fund your investment. Investors frequently utilize cash or short-term loans to finance the acquisition and renovation when flipping properties because it typically demands a higher initial expenditure. Leasing might be a more cost-effective choice because you can utilize a home loan to fund the purchase and use the rental revenue to cover your expenses.
5. Tax implications: The tax implications of each plan must be considered. The profit made through the sale of the property is subject to capital gains tax, whereas leasing allows for deductions on expenses such as interest on the mortgage, property taxes, and maintenance charges. Check out SARS’s article on the ‘Tax on Rental Income‘ for more information on which expenses are permissible.
6. Risk tolerance: Flipping is often seen as a higher-risk investing strategy because it is dependent on selling the property for a profit, which can be influenced by circumstances beyond your control, such as changes in the real estate market or unexpected renovation expenditures. Leasing, on the other hand, gives a more consistent source of income but comes with its own set of dangers, such as troublesome tenants or unforeseen maintenance costs. When deciding on a strategy, consider your personal risk tolerance and ability to deal with potential setbacks.
7. Personal objectives: Your own objectives and priorities can also influence your decision between flipping and leasing. Flipping may be the way to go if you want a speedy return on your investment and are ready to put in the time and effort. Leasing may be a better option if you want a more passive revenue stream and are willing to make a longer-term commitment.
8. Property condition: The state of the property can also influence your decision. Flipping may be a better approach for properties that require extensive repairs or renovations, as the investment can raise the value of the property and yield a higher profit upon resale. Leasing may be a better solution for houses in good shape because you may start receiving rental revenue right away without having to invest as much time or money in the property.
9. Personal skills and resources: When deciding on a strategy, consider your own abilities and resources. Flipping a house requires a certain level of renovation and project management expertise, as well as access to a network of contractors and real estate specialists. Leasing, on the other hand, requires continuous property management skills and may be more practical for investors who live nearby and can handle tenant issues and maintenance needs on their own.
10. Exit strategy: It is critical to have an exit strategy in place when making a real estate investment. Flipping is a short-term financial strategy that involves fast selling a property for a profit. Leasing, on the other hand, is a long-term investment plan that yields consistent rental revenue. Consider your long-term goals for the property before making a decision, and have a plan in place for how you will leave the investment when the time comes. This could include selling the home after a set period of time or keeping it as a long-term rental investment. A well-defined exit strategy can assist ensure a profitable investment while avoiding potential losses.
In short, both flipping and renting can be effective real estate investment techniques; nevertheless, each has its own set of risks and benefits. Before deciding on a strategy, consider your goals, resources, and local market conditions. Whichever approach you choose, remember to conduct thorough research, seek professional advice, and always have a backup plan in case of unforeseen challenges.
