Deciding whether to flip or rent out your latest home purchases can be a challenge, even for the most seasoned and experienced real estate experts, Successful flips can often mean heftier sums of money in your pocket ($10,000s+ or more) while rentals mean a steadier, long-term stream of income. Both options are viable options at different times and for different reasons. It’s important to know which investment style suits you and your needs the best.
The following post will explore the difference between flipping and renting to help you determine which option is best for you and your investment and business style:
Passive vs. Active Income:
One big difference when it comes to flipping versus renting is the whole concept of passive versus active income.
Passive income is income that is earned without you having to actively put effort into making the money. Essentially, no matter what you are doing, the checks will continue to come in.
Active income will require you to work on a daily basis to keep the money coming in. If you become passive your active income will go away.
View Flipping as a Business:
It’s important to understand that flipping houses do not constitute a business but rather it’s a business. House flipping is considered a business because you earn the money through the act of continuous flipping. You are actively seeking properties and consistently flipping them to keep a steady paycheck or a stream of money coming in over the course of time.
It includes the act of investing in the properties and flipping them to make money, however, considering that you must actively continue to do the investing and flipping in order to maintain a consistent paycheck and source of income.
Flipping has many characteristics of active income, therefore it is considered a business where you are constantly working in order to continue to maintain a steady rate of income.
Owning Rental Properties is Investing:
Owning rental properties is considered an investment. You are investing in that property and holding on to it for any period of time in order to rent it out and recoup the money you spent on the property.
This investment is considered a passive source of income as once you rent out the property you can continue going about your daily life and you will continue to get rental income from the tenants living in that residence.
This passive income could even be additional income if you choose to keep your day job while you are renting properties on the side for an additional source of income.
Business vs. Investment:
It’s up to you to decide if running a business or having investments works better for you. It’s all about preferences and how you choose to earn your income (in a passive or active manner). Both can help you make a healthy sum of money and can be a great way to work in real estate.
For more advice on investing in residential real estate please feel free to visit Leaf Management’s website for further advice and assistance as to which business or investment is right for you.