Is It Better to Flip Houses or Rent Them?

Flipping and renting houses both come with their own advantages and disadvantages, so exploring your options in this regard is all about determining what works better for your strategic plan. Answering “Is it better to flip houses or rent them?” can come down to a lifestyle difference, so let’s take a look at each option!

Passive vs. Active Income

The most significant difference between flipping and renting houses is the type of income that each offers. Passive income refers to money you make without doing additional work. In this case, renting a property is considered passive income because, once you’ve fixed up the property enough to rent it out, you will receive money every month that will not stop until the property becomes vacant.

Active income refers to money you make for doing a specific task. Finding a house, buying it, fixing it up, and selling it, is active because you must do all those things, and the money comes as a one-time payment for completing your task.

Flipping

Pros

When you’ve finished all the work, flipping a house offers the clearest path to making a lot of money quickly. When you sell the home, you receive one large payment for all the work you put in, and then you don’t have to think about that property anymore. This lack of long-term property management is another significant benefit to flipping homes.

Cons

Inconsistency and high tax rates are both definite negatives of flipping houses. The housing market fluctuates, so your investment may see a significantly lower return than you were expecting. If the return is good, you’ll have to pay a capital gains tax, which boasts a higher tax rate than rental income.

Renting

Pros

A consistent monthly income is a fantastic boon for those who choose to rent out their property. If your rental is in a good market, you are also likely to see that monthly income increase with inflation. There are also tax incentives to investing in property, such as writing off repairs and maintenance. Thriving in the rental market is possible, so don’t give up if you’re not sure what the best markets are!

Cons

Once your property is vacant, you aren’t making any money with it. If you have trouble finding tenants for your rental, it could sit vacant forever unless you reduce your monthly rates. Additionally, “passive income” comes with an asterisk. Without a management company to oversee the property, you’re still on the hook as the landlord for regular repairs, maintenance, and updates to the space.

Is it better to flip houses or rent them? In the end, it’s up to you. If you like the sound of a large sum of money in a shorter time frame at the expense of a great deal of upfront work, flipping is the way to go. You’re more suited to renting if upkeep along with a monthly income seems like the better offer. Whichever route you choose, good luck!