Which Is Better – Flipping or Rental Properties?

Investors often ask us about the best ways to make money with real estate investments. And, while there are numerous niches and strategies out there, house flipping and rental properties are perhaps the two most popular – and most controversial.

On any given day, you can go online or step out your front door, and you’ll get countless, wildly varying opinions about both investing in rental properties versus flip houses. One person will tell you that house flipping is the most lucrative and fun way that anyone could ever invest in real estate. Another will tell you that being a landlord is the best way to get passive income without working your fingers to the bone on construction projects.

But which one is better? Let’s take some time to look at these two real estate investing options, how they differ, and what makes them good for some investors and bad for others.

House Flipping Is Not Passive

First, if you are looking for a real estate investment opportunity that will provide you with passive income, you might want to opt for something other than house flipping. In addition to scouring the MLS and other resources for distressed properties, you will need to oversee renovations and then go through the process of selling each of your flip properties before you see any profits.

If you are interested in making a career change and working in an industry that will require fewer work hours for more pay, though, house flipping can be a very lucrative option. Essentially, though, if you’re planning on staying with your current career or you’re considering a means to continue to grow your wealth into retirement, house flipping may not be the best vehicle.

Rental Properties Are Not Always Passive, Either

At the same time, if you decide to act as your own property manager for your rental properties, you’re also looking at potentially very active income. You will be on-call with your tenants 24/7, and you will need to stay on top of things like rent collection, dealing with late rent, repairs and maintenance, and more. You might save some cash, but you will have a busy schedule.

On the other hand, though, rental properties do have the potential to provide you with very passive income. If you employ a good property management team, after you purchase the property, they will take care of tenant acquisition and retention, bookkeeping, rent collection, maintenance and repairs, and all the other details associated with rental properties. Plus, you’ll continue to collect income on the same property for as long as you own it, rather than having to sell multiple properties to continue earning more capital.

Before we say that rental properties are always better for investors who want to increase their passive income and continue to grow their net worth without much active work, there are ways to build a house flipping business that essentially runs itself. However, it will take a greater investment of your time, especially in the beginning.

Basically, if you are not in the market to change careers and you want to create sustainable investments that will continue to provide you with positive cash flow for years to come, rental properties are almost always a better option than house flipping.