Flip or Rent the Property
Though the world of real estate investing can be very complex and intricate, the basic decision as to what a real estate investor does with a property he or she is considering purchasing is more or less binary. The investor can either flip the asset for a large one-time profit, or rent it out to tenants to create a steady stream of cash flow in the months and years to come. Here are some helpful tips for new real estate investors to assist in deciding which one of these options is best for a given asset.
Consider the Location of the Property
Location play a large role in determining whether a property should be sold or rented out. If a home is in a neighborhood that is centrally located, especially downtown in city of any size, chances are it will make an excellent rental property, as younger professionals are likely to congregate in the area. If the home is in a more residential section of town, it can still be a good rental, provided you can find a tenant who is looking for the convenience of being close to central areas with the more quiet life of a residential neighborhood. If the property is more rural or is in a developing area away from the city’s center, renting it out becomes less attractive. Rural properties rarely attract renters, and developing neighborhoods usually attract people who are looking to settle down and purchase homes. There are, of course, exceptions to these rules, but the location of the property is a major factor to consider.
See What Kind of Deal You Can Get
Another factor in this decision is whether or not you can get the home in question for a price that is significantly below its potential market value. Motivated sellers will often take a fast sale over waiting to get what the property is really worth, leaving room for investors to make large profits on sales. If you can acquire assets for a price that is well below its value, flipping it becomes a more attractive option. Although long-term passive income from rental properties is an important part of a real estate portfolio, you should never overlook the possibility of making a large sum of money in a single sale. The profits you realize on such deals will help you to achieve financial stability in your business and make it easier to acquire other properties down the road.
Estimate Rental Cash Flow
It is a good rule of thumb that every rental property you own should produce at least some positive cash flow. When evaluating whether or not to turn a property into a rental, it is important to determine whether or not it will meet this criteria. Start by estimating what you could reasonably charge and expect to get in rent on the property. Then, subtract from that the monthly amount in property taxes and maintenance fees you can expect to pay. Also subtract your mortgage or loan payment if you plan to purchase the home with borrowed money. If, after all expenses, the property will not yield a profit, you should reject it as a rental property and either purchase it to flip or pass on it altogether.
Though every real estate deal is unique, these basic rules of thumb will help you to determine whether a given asset should be flipped or rented out. Always remember to consider multiple properties at a time and to select only the best one to purchase. Also keep in mind that success in real estate will take time, effort and persistence. No single deal will make you successful as a real estate investor.
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