When I started educating myself on real estate investing, I always imagined I would start with rental properties. I wanted to "house-hack" a multi-family property, living in one unit while renting out the others. This seemed to make the most sense and, based on my research, had worked well for many other new investors.
That strategy has since changed. I have now shifted my attention toward flipping. Here are some reasons why:
1. Short-term Capital Gains
Rental properties are all about positive cash flow and long-term ROI, whereas flipping focuses more on short-term capital gains. In the early stages of our business, we are focused on generating cash. The home-buying process becomes much quicker (and less complicated) when you can pay all cash. Don't get me wrong, leverage is a beautiful thing. But not having to deal with lenders and being able to close in a matter of days is even more beautiful. Not to mention zero lender fees and mortgage payments when you pay cash!
2. Less Liability
Tenants are unpredictable. You will likely want to establish an LLC regardless of your investment strategy (in order to protect your personal assets). Just my personal opinion, though, a lot more could go wrong when you have a stranger living in one of your properties for an extended period of time. When flipping, just be sure to hire licensed, insured contractors and have them review and sign a contractor's agreement with you.
3. More Control Over Your Investment
You should always triple check your numbers and use conservative estimates in your deal analysis. However, after closing, things can always change. While flipping, you run the risk of going over budget, delaying your project and overestimating your after-repair value. With rentals, you run the risk of delinquent tenants, vacancies and market fluctuations. Since flipping is short-term, you naturally mitigate some of the long-term, more detrimental risks associated with real estate investing.
Ultimately, the correct answer depends on what your personal goals and situation are. If you want to buy your first house and rent out extra rooms to roommates, great. If you want to fix up your first home while living there, awesome. There are hundreds of different ways to get started in real estate investing. The best advice I can give is research them all, talk to other investors about their experience and TAKE ACTION!!!
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