5 Reasons You Should Invest in a Rental Instead of a Flip

I get asked about this a lot! I mostly blame HGTV for convincing people they can make a ton of money on flipping homes, but what viewers don’t know is how hard it can be to flip a home and how little you might make in the end. Now, of course, there are times when it might make sense to renovate and flip, but most of the buyers I work with who want to flip a home actually end up going with a rental because of the long-term investment. So let’s dive in and talk about the main reasons you should consider buying a rental vs. a flip.

1: You need a lot of cash up front

Typically when buying a non-owner occupied home, AKA a rental property, your lender requires a 20% down payment unless you buy the home with cash. Most homeowners are used to being able to put down a much smaller down payment on their personal homes, so this can be a big surprise they didn’t see coming.

2. Long-term rentals can provide monthly income

Unlike a flip, which only gets you a profit one time, a rental can provide a little bit of profit each month. But here’s the trick, you should try to purchase a home where the sales price can equal 1% of the monthly rental fee. So if you buy a house for $100,000, you would want to charge $1,000 in rent each month. That’s the typical guide a lot of investors follow. That 1% should cover the mortgage plus your property management’s fee and give you a little extra that you can put away for repairs and maintenance.

3. The Springfield market doesn’t have a lot of foreclosures or under-priced homes these days

With our market being hot, it can be harder to get investment properties. Home prices are inflated right now, which is why a lot of investors are waiting to purchase homes.

4. You won’t make as much flipping a home as you think

Will and I have flipped about five homes in 10 years, and here’s what we’ve learned: Most people in our area will make between $8,000 to $10,000 on a flip. So quit watching HGTV and thinking you are going to be the next Tarek and Christina who are making six figures with every house they flip. That’s so hard to do in our area where the cost of living is low.

5. Springfield has a strong rental community

When you think about all the colleges and hospitals and businesses that have contract workers who are only here for a year or a few months, you start to see why Springfield and the surrounding area needs more rentals. There’s actually a big need for executive rentals in our market. These are higher-end rentals for someone who might be building a home and needs a comparable home to live in for a year or a contract worker who is going to be in town for six months and has a family with them. A home like this could be rented out for $2,000-plus a month. Our family actually experienced this when we were remodeling one of our homes. We basically gutted our house and had to move into a rental for about a year. As a family of four, we were looking for something bigger than an apartment, so we needed a high-end rental.