When you buy an investment property, there are a few different exit strategies you can choose. You can flip the home to sell for a profit, rehab the home to rent it for a profit, or immediately sell after purchasing without doing much rehab work. In this blog post, we will discuss the pros and cons of each option and help you decide which is best for you as a real estate investor!
Flipping the investment property
You can buy a property At a discounted price, fix it up, and sell it for a profit. This approach often is appealing to those who appreciate the process of updating something from a distressed state to something of beauty. However, there are some risks associated with flipping property in today’s market.
If you’re going to flip a property, make sure you know all of the potential costs before making this decision. There are always surprises, so having extra cash on reserve for unexpected expenses is necessary. In some cases, it is hard to tell the condition of some of the systems in the home without careful examination. If you’re selling the property, you may have your eye on the short-term gain from the re-sale, but make sure you have enough money saved to cover at least six months of mortgage payments while rehabbing the property.
When evaluating a project to attempt to “Flip”, you will want to consider the known deficiencies, and compare that to your relevant skill sets. If you do not have the skill sets needed to address an issue, then that means you will have to outsource that issue. When outsourcing an issue, you now have to account for the time and cost to have that done. Outsourcing too many tasks could turn into a bit of a logistics and personnel management nightmare.
Depending on many factors, the process can be smooth sailing or be super stressful. Just make sure you’re prepared for wildcards before deciding to flip a real estate investment property.
Renting the property right after purchase
There are many benefits to renting an investment property. First, you can make a monthly income from the rent payments. This rental income will help you pay off the mortgage on the property and give you a return on your investment.
If you have a rental property that is making, for instance, $500 per month in cash flow, you can use that money to put towards other investments, it can supplement or replace employment income or you can purchase something you desire. (Let your assets pay for your liabilities!)
If you’re new to real estate investing, you can use a rental property to help you get started in real estate investing. A rental property can be a great way to learn the ropes of the business and make some money while you are continuing to learn and test other strategies.
One best practice is to hire a Property Management Company that takes over management of the property on behalf of the Landlord. The Property Manager takes over responsibility for finding, screening, and placing Tenants. The Property Manager is also the primary point of contact for all other issues relative to the Tenants needs. These issues can range from maintenance to payment and legal needs of the Tenant. This should help you to avoid the endless stories about troublesome tenants, so make sure proper research is done on prospective tenants.
Overall, renting an investment property can be a great way to generate income, but investors need to be aware of the risks involved.
Selling the property right after purchase
Selling an investment property can be a great way to make a quick profit. However, you need to be aware of the risks involved. If you’re not careful, you could end up paying too much for the property and not making a profit on the sale. Second, depending on the condition it can take a long time to find a buyer for an investment property.
The pros are, that it’s fast and easy. If you choose to sell fast after purchasing an investment home, there is less work for you regarding the renovation process. You can just buy a fixer-upper house and sell it for a quick profit without having to worry about doing much work or renting the property out.
One common way that investors are accomplishing this in today’s market is described as a “wholetail” transaction. This is the process of purchasing the property at wholesale prices and then placing it for sale in the retail market.
Some investors may think that they can make more money by renting their property out after fixing it up, but this is not always the case. The amount of time and effort to fix up a property can be wasted if it is not in the right market. Selling the property right away can help you get a quick return on your money.
This can be beneficial for investors who are looking for short-term gains or don’t want to bother with managing rehab projects or rental properties. The easiest way to do this is by selling directly to an interested buyer.
Selling a property is also much more straightforward than renting it out. There are no long-term contracts to worry about, and the transaction can be completed in a relatively short amount of time. The buyer will also be responsible for all repairs and maintenance, saving the investor a lot of money.
Conclusion
If you’re comfortable with the risks involved, rehabbing to rent, “flipping” or “wholetailing” may be good options. Whichever you choose, make sure you do your research and understand what each option means for you as these ventures tend to be more risky.
Doing your research before buying an investment property is key. Knowing the real estate market and how much similar properties are selling for will help you make a knowledgeable decision on whether or not to sell right after you buy. With the right information, you are well armed to be as successful as possible in your new project.
Thank you for reading. We hope this blog post has helped you make a decision about what to do with your investment property. If you enjoyed this information, come to our virtual weekly Thursday Office Hours, where we discuss all things real estate investing. Hope to see you there!