Should You Flip or Rent Your Investment Property?

Rent vs. Flip – It’s all about YOU!

Flipping vs. renting—neither approach to real estate investing is better than the other, and it’s silly to claim otherwise. Whichever approach you choose must be a reflection of your personal goals, preferences, and situation, and to some extent the property itself.

To decide which path to take—rent or flip—start by taking a look at where you are in life, and what your goals are. For instance, if you have a w2 with active income coming in and a bit of money saved, renting may be the option for you: You don’t necessarily need cash today, and you can surely use the tax benefits of depreciation (which rentals get you) at tax-time.

On the other hand, if you’re a member of the gig economy, for instance, or engaged in real estate full time, flips may be the better option, as you need to be seeing immediate cash back on your time. Remember, with flipping, your income is dependent on the number of flips you do each year. Do you like to roll your sleeves up and act?

The next consideration is the time and capital you have to invest. Flipping requires less money generally because you don’t need to hold on to the property for an extended period. However, the profit hinges on selling the property at the right time and price. And flipping can force you to sell even if you’d prefer to wait a few months.

Then there’s the property itself: Does it feel like a rental? Will it refinance? If it’s a flip, do you have an exit strategy in place? The golden rule is, not every flip is necessarily a good BRRRR, but every BRRRR should shake out as a flip. 

As you decide the strategy that is right for you, take a look at a few of the considerations:

What to know when considering flipping a property

• Make large amounts of money at once – On average, investors spend 3-6 months working on a property flip. With that timeline, you can take on several flips a year, and earn a significant income off of each. As these are short-term investments, your money is returned to you faster, giving you a higher rate of return and allowing you to complete more deals than with rental properties.
• At the mercy of the market – The value that you’ll be able to sell your property for are very much dependent on the ebbs and flows of the local real estate environment. In a growing market, you can usually expect to make a strong profit when you sell your property. However, during a crash, your final returns could dramatically decrease, leaving you with less profit than expected.  
• Unexpected costs – When considering the overall cost of flipping a property, investors also need to add a cushion for unexpected expenses that come up during the renovation process. Whether an issue is found within the walls of the property, or issues arise with the contractor, not accounting for these potential expenses can heavily influence the returns on your project.

However, when you turn a property into a rental, you only have to do the work once and you’ll receive monthly cash flow in the form of rent checks each month. Rental income is ongoing and doesn’t stop until the property becomes vacant.

What to know when considering a rental property

• Steady income stream – Arguably the biggest benefit of a rental property is the regular cash flow from rent checks. Investors like that this gives them a steady passive income, and helps them reach their financial goals as they add more and more rental properties to their portfolio.
• Property appreciation over time – Most properties appreciate in value over time. A rental strategy allows investors to hold on to a property, collect a steady cash flow, and then cash in on an increase in the property’s value at a later time.
• Long-term management – Not every investor has the desire (or skillset) to be a landlord. Maintaining a successful rental property requires a lot of attention and upkeep. From finding high-quality tenants to keeping the property in top condition, acting as a landlord can take a lot of time out of your days, pulling you away from other investment opportunities. Spend some time thinking about if you’re willing to dedicate the time and effort  needed to manage a property.

In short, there’s no straightforward answer to which is the better investment strategy, and it’s really based on your investment goals. The good news is,Backflip has made it easier at least to determine if a specific property is better used as a fix and flip or a rehab and rent. Using Backflip’s Returns Analyzer, see which strategy gives you the best returns, so you’ll know instantly if it’s a good investment and how to incorporate it into your portfolio.