Real Estate Investors’ Best Bet: Flip, Rent, or Hold?

As any seasoned real estate investor could tell you, purchasing property is the easy part. The real challenge in real estate investing is figuring out what to do with those properties. Your options typically come down to three choices: flip, rent or hold. There is money to be made using each method, but knowing which method is right for you and your property will be the key to your success.

if you’ve watched enough HGTV, you may think you know the answer already. Not so fast! The blood, sweat, and tears—not to mention the risk required to build wealth in real estate are different for everyone and can change the equation significantly from what you’ve seen on television.

While every deal is different, average gross returns are a good place to start when deciding whether a property is best-suited for holding, flipping, or renting:

House Flipping

The first half of 2017 gross returns: 48.6%*

Those returns look pretty outstanding, don’t they? However, what is important for would-be house flippers to know, is about 20­–30 percent of their profits will go straight toward expenses like renovations, closing costs, insurance, and property taxes. Gross returns aren’t the same as gross profits, after all.

The key to success in flipping houses is thorough working knowledge of the neighborhood where a home is located. Know everything you can about the other homes nearby, including what they’ve sold for, what condition they’re in, and how many are on the market. Access to quality schools and transportation infrastructure are primary concerns as well. Look for a market where homes are still affordable but appreciating rapidly—easier said than done since your competition will be after the same properties you are.

That’s where a good real estate lender comes in. In order to capitalize quickly on a promising real estate opportunity before anyone else snaps it up, time to close is critical. When trying to speed up the process, consider using a real estate crowdfunding platform to fund up to 80 percent of the home’s after-repair value (ARV) in a matter of days, not weeks.

House Renting

Five-year returns: 11.67%*

Affordable­-but-growing markets are ideal for buying homes that you will rent, as well, because new rental demand will be critical to turning a profit. The payoff with rental properties won’t come in one big lump payment, but rentals can provide a steady income for many years if properly marketed and maintained.

That won’t always be easy. Renting out a property requires a lot of hands-on attention, and not everyone wants to receive 4 a.m. phone calls about plumbing emergencies. Maintenance costs in both time and money can add up quickly, particularly if you’re renting out multiple properties. Many landlords opt to hire property management companies to handle rent collection and maintenance, but their services cost money too—up to 12 percent of the monthly rent.

Buying a property that will appreciate quickly and paying it off fast is the best way to earn maximum profits from a rental property. Once again, it’s important to work with a quality real estate lender to make that happen.

House Holding

Five-year appreciation: 44.8%*

In a way, every homeowner is a real estate investor. By choosing a home wisely, negotiating a good deal, and closing for the best price, any home buyer can turn a profit when they choose to sell. The trick? This can take quite a while in many cases.

If you’re prepared to let a property appreciate in value to make money, choose a property in an area unlikely to decline and commit to keeping the home in excellent condition. Understand that your investment won’t pay off quickly—five years is basically the minimum in order to build up enough equity in the home to net a profit after real estate agent fees and closing costs.

Of course, the upside is that you’ll have a place to live! While you own the property, you can build equity in the home through appreciation and paying the mortgage debt. Do your due diligence with more than one mortgage lender in order to find the best deal that you can so that you can pay down your debt as soon as possible and reduce risk.

No matter how you choose to invest in real estate, understand the risks involved and don’t make emotional or snap decisions. Real estate investing is a numbers-based business. Don’t risk more than you can afford to lose, and always work with a reputable lender. There are no guarantees, but there is unquestionably money to be made in real estate if you plan wisely and stick to it.