Flipping Houses vs Renting: Which is Better?

Real estate investors often have many different opinions when it comes to flipping houses vs renting. 

As some investors feel flipping is the way to go, while others think rental properties are the better strategy for real estate success. 

There is even a third category of real estate investors that will switch back and forth between flipping and rentals depending on the situation and the house.

So which is better flipping houses or renting?  The answer to this often asked question is that there is no one right answer.  There are pros and cons to both flipping houses and rental property and it really comes down to the individual needs of the real estate investor.

Flipping Houses vs Renting

Flipping Houses Pros and Cons

When looking at flipping houses vs renting, flipping houses is definitely the more exciting approach to real estate investment.  After all who wouldn’t be excited about a potential payday of $69,500 which was the national flipping average profit in 2018.

However, with all that excitement also comes a lot more stress and risk of things going wrong, leading to a potentially bad investment. 

When investing in real estate as a short-term investor as with any type of short-term investment your risk goes up exponentially.  As time is the one variable that tends to smooth out the rough edges of investing no matter the type of investment vehicle you choose.  

 It’s hard to find another investment vehicle though whether it be stocks, commodities, etc… with so much short-term upside potential as flipping houses.  Always remember though that things can quickly turn sour when flipping houses leading to a loss instead of a profit. 

This is why it’s so important when flipping houses to understand the entire house flipping process and all the potential risks such as runaway and unexpected expenses, swings in the real estate market, and holding costs, etc… 

Flipping Houses Pros

• Potential to Make Quick Profit
• Hands-on and Exciting Investment
• Be Your Own Boss
• Allows for Creativity and Design
• Provides Real Sense of Accomplishment
• Help Local Community by Turning Run Down Property into Nice Homes Again 

Flipping Houses Cons

• High Risk
• Can Lose Money Instead of Making a Profit
• Lots of Work and Manual Labor
• High Taxes on Profit
• Stress and Anxiety
• Hold Costs and Potential Difficulty Selling the Property

Rental Property Pros and Cons

Even though both have the potential for profits, with flipping houses vs renting, you might picture the popular fable “The Tortoise and the Hare” as a good analogy.  Where the tortoise is a rental property and the hare is flipping houses, both have the potential for profits but they go about it in drastically different approaches.    

Just because the rental property might not be as face-paced or as exciting as flipping houses though doesn’t mean it’s not a great real estate investment strategy.  In fact, thanks to the slow burn approach of rental property there can actually be a lot less stress and risk when compared to flipping houses.  

While there is certainly some risk involved in rental property as with any investment i.e. bad tenants, evictions, unexpected expenses they tend to be much more manageable and occur less often when compared to the potential risks of flipping houses. 

With a rental property as well, instead of receiving a lump sum payment of profit like with house flipping, you can instead receive cash flow and passive income from the property for as long as you own it.

Rental Property Pros

• Long-term Cash Flow and Passive Income
• Long-Term Capital Appreciation of the Property
• Potentially Less Rehab and Construction Needed
• Lower Taxes on Profit

Rental Property Cons

• Requires Active Management
• Potentially Dealing with Evictions and Bad Tenants that can Damage the Property or Not Pay Rent
• Need Many Rental Properties for a Livable Income
• Long Term Property Maintenance

A great book I read if you really want to dive deep into rental properties is “The Book on Rental Property Investing” by Brandon Turner.  You can check it out on Amazon by clicking here.  

Flipping Houses vs Renting

As a real estate investor when choosing between flipping houses vs renting it’s important to consider both the pros and cons of each real estate investment strategy. 

But it’s not enough to just consider the pros and cons of flipping houses vs renting, as an investor you must also consider what type of real estate investment is a better fit for your investment goals as well as your appetite for risk.

To illustrate this point let’s take a look at two different real estate investors to see which real estate investment strategy would be better for each.  

Investor One

This investor is looking for a short-term profit in order to make a living right away.  They like getting their hands dirty and have a background in construction and home repair. 

While they always take calculated risks, they are not afraid of risk and actually enjoy the thrill of the hunt and thrive off of excitement and the unknown.

Judging from investor one’s bio it’s probably easy to see the better fit for this investor would be flipping houses, as it will provide the potential for short-term profits and investing excitement they are looking for.

Investor Two

This investor tends to be more on the conservative side of investing and is less interested in quick profits as they have a job that pays their bills.  Investor two is more interested in passive income and building wealth over time with a portfolio of real estate. 

While they don’t mind getting their hands a little dirty they don’t have the time or the inclination to devote their entire lives to working on and fixing up houses.  

Again it’s probably pretty obvious that rental property would be the better option for investor two when considering flipping houses vs renting.  As rental property provides both slow wealth-building opportunity and passive income while minimizing investment risk.  

While it’s unlikely that any real estate investor will be so one-sided when it comes to their real estate investment strategy and goals as investors one and two.  Hopefully, when reading through each investor’s bio you were able to side more with one than the other to help you choose your own best path to real estate investment.

Also, don’t forget that when it comes to real estate there is nothing that says you can’t pursue both flipping houses and rental property. 

In fact, some of the most successful real estate investors pursue both real estate investment strategies in order to have a well-diversified portfolio and to reap the rewards of both. 

Allowing house flipping to provide the needed short-term profits to make a living but also owning rental property to provide passive income and long-term capital appreciation.