What’s the Difference Between Flipping Properties and Renting Them Out? According to Andrew Shader
Andrew Shader recognizes that flipping properties and renting them out are both viable but different investment strategies. Your overall goals should determine which investment strategy is most optimal for your situation.
Owning real estate properties while actively renting them out offers passive income and the ability to accumulate wealth over an extended period. Flipping properties provides a quick turnaround on your investment and offers immediate active income.
There are two standard ways of flipping properties. The first strategy consists of purchasing properties that are below current market value due to financial distress.
The second strategy involves finding fixer-uppers, which need repairs to achieve their highest potential market value. Let’s walk through Andrew Shader’s opinion on the pros and cons of property flipping.
Pros of Flipping
Flipping properties offers a faster return on your money and is also a potentially safer investment. Although it takes an average time of six months to flip a home, this is still shorter than the long-term holding of properties. After flipping, you can take the capital and use it for other investment purposes.
Cons of Flipping
Flipping properties has increased costs over long-term holding as well as facing a higher capital gains tax rate. Transaction costs from buying and selling a home are incredibly high and can affect your ability to generate profits. You also need to consider the time costs involved in coordinating the labor of rehabilitating the properties.
Renting out your property allows you to take advantage of increasing home prices while generating passive income. Furthermore, rentals require less time than flipping if you utilize a third-party property management company.
Pros of Renting Properties
Renting properties allows property owners to generate ongoing income alongside increasing equity as property values rise. Furthermore, owning a rental property is taxed as investment income and faces a lower tax rate than house flipping.
Cons of Renting Properties
Long-term real estate management is difficult with many challenges, such as legal issues and day-to-day responsibilities. In addition, rental properties have high vacancy costs if you’re unable to find tenants.
Finalizing Your Strategy
In general, Andrew Shader recommends long-term holding and renting out properties for those who utilize real estate as a major portion of their investment portfolio. However, the most optimal strategy you choose depends on your overall financial situation and long-term goals.
Flipping properties is a strategy that should be deployed when prospects in the bond and stock markets are low. It allows you to realize short-term capital gains that you wouldn’t be able to achieve with long-term holding.
About Andrew Shader
Andrew Shader is a real estate investor, developer, and entrepreneur based out of Fort Lauderdale. Shader started as an entrepreneur in the insurance industry before discovering his real estate passion: finding scalability in any vertical. Andrew’s real estate strategy specializes in finding value-added properties and increasing their property value by upwards of 60% — without needing to rely on future appreciation.