| Kevin Kiene 2007-01-10, 1:25 pm |
| Real Estate has always been a tried and true type of investment that
can offer both short and long-term gains, is relatively safe and
creates wealth for millions of investors year after year. But, before
you purchase a property you must determine if you want to flip the
property or rent it out. We all know how the real estate market
fluctuates, sometimes we are in a buyer's market and sometimes we are
in a seller's market. What you do with your investment may depend on
what is happening in the market and how much you pay for an investment
property.
Knowing When to Flip a Property
Buying a property and selling it fast, a.k.a. "flipping", can
provide huge profits if done right. The key factors to look at are the
purchase price, the condition and location of the property and knowing
how to "comp" or determine how much comparable properties are
selling for (and how fast!).
Generally speaking, if you plan to pay a lot of money for a single unit
investment property, your best bet is to turn it around quickly and
flip it. Expensive investment property comes with big property tax
payments and big mortgages, which usually will rule out any cash flow
for renting. Locating renters for higher priced homes can be difficult,
and if they miss a rent payment for one or several months your cash
flow may not only totally disappear, but you may take a loss.
If you can buy a property at wholesale prices that only requires
cosmetic changes, you should be able to flip it for a nice easy profit.
Look out for property with major structural problems, a.k.a. a "money
pit", especially if the price was priced high to begin with. Before you
buy property that needs any major repair be sure to assess not only
your financial resources, but also the resources of your work force. Do
you already have relationships with different types of contractors and
other skilled labor professionals? Just be sure to look at the whole
picture before you decide to flip a property.
How to Know When to Rent a Property
If you're looking for a nice monthly cash flow and building equality
over time, you may want to rent your investment property. Renting is
generally a much safer type of real estate investing. The key factors
to look at are the price of the home, if the area where you are
investing has growth potential, and the condition of the property.
Lower-priced investment property will translate into a lower monthly
payment, lower property taxes and lower priced insurance. You can buy
several lower priced investments and spread out your risk of both
tenants that don't pay and buying a property that turns out to be a
money pit. Remember, when you're renting out a property you are
building equity by using your tenant's rent money.
You also want to determine if the area where you are investing in is
growing. Do you notice a lot of new construction in the area? Do you
see new business moving in? Is the location near an urban area, with
plans for a new infrastructure? Properties located in growth areas
almost always net the largest gains over time.
When you invest in a growth area you can make money flipping a house,
but you may be able to make considerably more money if you rent it out,
build equity, and sell it for a much higher price at the optimum time.
You may not make as much cash-flow in a growth area, but the property
value may go up so fast that cash-flow doesn't matter.
It's Not Just About the Bottom Line
Deciding whether to flip or rent out a property is not easy, assess the
market, do the math, and then consider your own interests and
abilities. The perfect flip may not be for you if you have no
construction or renovation experience, and becoming a landlord may just
not be for you period. In the end, it's not just about what's best for
your pocketbook; it's what's best for you.
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By: Kevin Kiene
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