One of the primary decisions that single-family Orange County real estate investors make is: flipping or renting? While house-flipping does involve certain advantages, several house flippers also encounter enormous risks and usually make big sacrifices to get the property ready to sell. On the flip side, buying properties to rent can become one of the fastest methods to grow real wealth without the risk or sacrifice of flipping – as long as it is performed well. To properly understand why rentals are a better investment than house flipping, we will talk about the pros and cons of both.
Flipping: The Pros and Cons
For numerous people, flipping houses is a massive investment of money and labor. The reason house flipping lures many investors is due to the potential for a big, one-time payoff. And there are some house flippers who have acquired tremendous money.
But that desired payoff follows with a significant set of risks, beginning with having your money tied up in a flip for as long as it takes to renovate and sell it. You only earn revenue after finding, buying, remodeling, and then reselling the property. For numerous investors, that signifies your income is limited to the number of flips you can do in a year.
Flipping is also innately volatile, with several possible threats that can quickly eat into your profits. For example, there’s no guarantee that the bargain property you obtained will appreciate or be priced as much as you wish once it’s ready to sell. Your income is totally at the mercy of fluctuations in the real estate market. Rising costs of materials, a deficiency of qualified service providers, or unethical or dishonest contractors, including some other challenges, can also make your renovations more costly, reducing your potential payoff eventually.
Zillow: A Case Study
For a high-profile example of flipping gone wrong, take the story of Zillow. The corporation agreed to jump into the house flipping game by choosing to buy homes for sale and then turning around and selling them at a profit. At least, that was the original goal. The problem is that Zillow could not sell numerous purchased properties, leaving them with 7,000+ homes now worth less than what they paid for them. It’s every flippers nightmare – on a vast scale.
Investing in Single-Family Rentals
The right strategy to limit risk while growing wealth is to invest in rental real estate. Single-family rental homes have proven time and time again to be one of the best pathways to real, long-term profitability. There are various significant factors for this.
Primarily, one of the biggest benefits of investing in rental homes is the capacity to earn short-term cash flows while growing your property values. As your properties appreciate, the payout when you sell keeps pace with inflation over the years.
There are very few investments that can promise the same! Rental properties appear to be very stable in difficult economic circumstances, helping single-family rental property owners to sustain a regular monthly income. There are also various tax benefits to owning rental properties, which may add up to huge savings over time.
One of the biggest causes some investors avoid single-family rental homes is because of the management they demand. Even though owning rental homes often takes less time and effort than flipping houses, rental homes still need active management to stay profitable.
The good news is that, when conducted effectively, you can streamline your investment properties and reduce the amount of time they will require of you. When you collaborate with a quality Orange County property management company, you can transfer most day-to-day tasks off your calendar, leaving you accessible to focus on growing your investment portfolio.
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