Investing in Real Estate
Have you ever wanted a fix-it-up TV show on HGTV? The flippers on TV sure do make it seem so easy! Learn the pros and cons of fixing up a home for profit. Investing in real estate can be profitable; however, it is essential to decide which type of investor you want to be.
You first want to choose the right property and then determine if you want to fix it up and sell it or fix it up and hold on to it to generate rental income.
Real estate is an asset that you can improve and rent out for monthly income; and garner some tax advantages in the process. Real estate appreciation has outperformed the stock market by almost two to one for nearly the last two decades. Real estate will likely generate long-term financial benefits.
Fix-and-Flip vs. Fix-and-Hold
Fixing-and-flipping is a way to turn a profit fast by purchasing a home requiring renovation or repairs at a discounted price. Many savvy investors renovate the property themselves. Others hire contractors to do the work. Fixing-and-holding is when investors restore a discounted property, rent it out, and hold on to the property before selling it for a profit.
Pros and Cons of Fixing-and-Flipping
- A quick profit – You can potentially make a year’s salary in a few months by repairing and re-selling a discounted home after performing the appropriate structural and cosmetic improvements.
- Networking – Flipping houses will help you build connections with real estate agents, contractors, inspectors, and insurance agents. Networking with these professionals can offer many advantages; new home listings, design ideas, and discounts on materials and labor.
- Flexibility – House flipping allows you to keep your capital and profits fluid, so that you can invest in other opportunities. Fixing and flipping gets you in and out of a property quickly with no tenants or maintenance to contend with after renovating.
- Complications – It is not always easy to know what a house needs to become sell-ready and what buyers are going to want or need. There may be unforeseen flaws and permit delays which can prolong the fixer-up process.
- Taxes – Profits may seem big until your home is subject to significant capital gains tax, a fact of life nearly impossible to avoid.
- Resale – Each month your property sits without a buyer means less profit for you. There is no guarantee you will find an instant buyer, so investors need to prepare for this potential issue.
Pros and Cons of Fixing-and-Holding
Fixing-and-holding can grow your profit margin more significantly than flipping. Renting out your property can generate monthly income while you wait for the right time to sell the property.
- Income – Renting out a property for a payment exceeding your expenses while you wait to sell earns you an income while your only additional obligation is performing the responsibilities of a landlord.
- Taxes – Real estate investors benefit from many types of tax deductions; such as property taxes, mortgage insurance, and mortgage interest.
- Appreciation – Buying and holding a property is premised on the property value increasing over time; a likely but not absolutely certain result. Timing is everything. As the cost of living increases, the rent may increase. Meanwhile, a fixed mortgage payment remains the same, although property taxes, insurance, and maintenance costs may increase.
- Tenants – The right tenants are a dream, and the wong tenants can be a costly hassle. When tenants do not pay their rent on time, you will have to cover the mortgage payment out of your own money. The more frequently a tenant requests repairs, the more of a hassle being a landlord will be.
- Property Damage – Even tenants who pay on time each month may cause damage to the property. Having a sufficient security deposit can help.
- Vacancies – A long-vacant property can leave you in a poor cash position, as the mortgage, utilities, property taxes, insurance, and maintenance costs all must be paid. Be sure you can afford to take on this risk before deciding to hold onto a property.
Richard S. Weinstein
Whether you want to fix and flip a home or fix and rent it out, Richard S. Weinstein is the real estate attorney you want to hire to help you navigate the process. He can offer invaluable advice and ensure the process is meeting all legal guidelines.
With over 50 years of experience as an attorney, Richard S. Weinstein assists clients with the important financial situations in their lives. Whether you are dealing with bankruptcy, real estate (both commercial and residential, including short sales, foreclosures, and title insurance), estate planning, probate, business formations, or sales or mergers, Richard S. Weinstein is the attorney with the education, experience, and knowledge you need!
Law Office of Richard S. Weinstein, P.A.
250 S. Central Blvd. #101
Jupiter, FL 33458
Phone: (561) 745-3040
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