Fix-and-Flip vs. Rental Property: How to Choose the Right Real Estate Strategy for You

As a real estate investor, especially a beginner, you may be faced with the question: should you fix and flip a house, or should you give it out for rent? This can be a difficult decision to make but rest assured: you’re not alone. Both have their systems and benefits, and it’s up to you to determine which one works best.

With fix-and-flip strategies, you buy a piece of property, do some quick renovations, and then sell it at a profit. Rental properties also involve renovations, but rather than selling them, you lease them away. This generates long-term profit.

You choose the one that’s the best fit for you based on your goals, time availability, and risk tolerance. This article will compare renting vs flipping and analyze the pros and cons. Once you consider every key factor, you can decide for yourself which one is best.

What Is Rental Property Investing?

Rental property investing is a type of buy-and-hold strategy where you lease out the home to temporary residents (tenants). In return for a place to stay, the tenants offer monthly payments that create a steady cash flow.

Rental property investors hold on to properties for 5-20 years, depending on their strategy. You can pay for the house using a mortgage and set rent payments based on the mortgage rate trends. As such, the house will pay for itself in the long run.

What Is Fix-and-Flip Investing?

House flipping doesn’t hold onto property. Instead, an investor buys it, renovates it, and sells it for a higher price than they bought it for. The price of the home should cover what you paid for it, the renovation expenses, and potential profit.

The best strategy here is to buy a house at a low price, below the market value, from sellers facing financial difficulties who want to sell the property fast. This keeps repair costs at a minimum.

Pros and Cons of Rental Properties

Rental properties come with a series of advantages and drawbacks that you may want to consider before making a choice. Here are the pros of this strategy:

• Steady Monthly Income: If you screen your tenants well and the property remains occupied in the long term, you get a steady income every month. This lets you cover a potential mortgage while bringing profit.
• Long-Term Appreciation: Provided you ensure good maintenance on the house, it will appreciate with time. For example, 2021 brought an 18% price surge. While that’s a record, each year shows some degree of appreciation.
• Tax Benefits: You get taxed for rental property income the same way you do any other income. That said, you can reduce taxable income by deducting maintenance expenses.
• Leverage: You can take advantage of leverage, such as mortgages, to boost ROI. This lets you control significant assets with little cash while making a profit.

Rental properties can also be associated with a series of risks or disadvantages, including:

• Tenant Issues: If you didn’t screen tenants well, you could deal with late payments, property damage, and even evictions. This can lead to profit loss.
• Vacancy Risk: High vacancies such as the ones associated with short-term rentals can reduce income and increase stress. Long-term rentals have lower vacancy rates, but the risk is still there.
• Property Maintenance: With time, you’ll have to conduct regular maintenance and unexpected repairs. The costs increase the more you hold onto the property.
• Long-Term Commitment: Rentals require you to stick to a long-term plan to generate profit. This may not work well for those who want quick cash.

It is best to put these matters in comparison and see if the pros outweigh the cons.

Pros and Cons of Fix-and-Flip

Fix-and-flipping also has various advantages and drawbacks when compared with rentals. Here is how flippers can benefit:

• Quick Returns: Once investors buy out a property, they can renovate and list it within a few months. This generates quick profit.
• Full Renovation and Resale Control: Rental properties bring certain limitations in design. With fix-and-flip, you have full control of the design and renovation aspects. You can go for micro-flipping or complete renovations if you want.
• No Long-Term Management Responsibilities: Once you sell the property, you are done. You don’t have to deal with tenants, maintenance, or other management tasks.
• Builds Capital Quickly: Flipping homes brings quick capital, usually within a few months. You can use it to buy a new house to flip or invest in rental properties.

The fix-and-flip strategy also brings a couple of challenges, including the following:

• Higher Upfront Cost: You must be able to cover not just the home price, but also the renovation costs. Loans can help you, but they often come with high interest rates.
• Market Risk Exposure: Fix-and-flips have you selling the house within a few months, but a market crash can happen in a much shorter time. Today, everything is stable, but tomorrow the economy can experience a downturn, affecting home prices.
• Unexpected Expenses and Delay: You may buy a home to flip that looks like little work at first, but it can bring unexpected renovation costs. Whether it is mold, electrical systems, or permit delays, this can lead to hiked-up costs.
• No Recurring Income: House flipping only brings income once. You will have to consistently flip homes if you want steady revenue.

In the end, fix-and-flip strategies give you more creative control and quick profit but could lead to higher upfront costs.

Key Factors when Comparing Flipping vs Renting

Before you choose, you have to consider how each factor fits into your business and investment style. Here are some things to keep in mind:

1. Time Available

Fix-and-flip investments need full focus from you from the start. You want to sell the house at a profit, and you can only do that if you renovate. You’ll have to oversee the renovations for a couple of months, but once that’s done, you get paid the full amount. Renting doesn’t need renovations unless you want to. It’s a project for the long term, making it great if you’re looking for a passive income.

2. Tolerance for Risk

Flipping homes brings returns if you sell them when the market is just right. You can also face extra renovation costs or downturns. Take the housing market crash of 2012-2014, which caused more than one-third of homes to drop in value.

Many investors who flipped homes had to sell them at a loss. Rental properties aren’t that risky in this case, since you don’t have to sell immediately. That said, you could still come across risky tenants who try to scam their way out of paying rent.

3. Capital Available

House flipping needs higher capital due to the upfront costs. You need money for the house, and cash for renovations. You also have to pay for its marketing if you plan to sell fast.

Rental properties don’t need as much capital, as most investors pay with a mortgage. The most you’ll have to pay is the down payment. However, you need to ensure you get the mortgage you want while maintaining an “emergency cash reserve.” You never know when the tenants will just decide to skip rent one day.

4. Income Needs

The average house flipping profit in 2024 was around 29.6%, bringing the average yearly gross profit to around $72,000. This helps those who prefer lump sums. Flippers just have to deal with the downtime between deals, which can be a couple of months.

However, rental properties bring monthly profit if you choose a reliable tenant. You can buy the house, renovate it if needed, and find someone to live in it. The longer the term, the higher your security will be.

5. Investor Skillset

You have to be good with budgeting, project management, and coordinating contracts as a flipper. The strategy is also great if you like the renovations part of real estate.

That said, if you have people skills and feel more confident managing tenants, renting could be more suitable. Financial planning and organization skills that include lease agreements, tenant screening, and scheduling maintenance put you more on the rental lane.

In the end, it’s not just about choosing the strategy that has the best profit potential. It’s about going for the one that fits you the best. Once you know your limitations and strengths, you can set out on your path toward building a portfolio.

Can You Combine Both Strategies?

When comparing rental property vs fix and flip, you may ask yourself: can’t I just do both? Indeed, you can, but you have to be careful how you do it. The majority of investors start with flipping homes so they can build capital. Once they have enough, they can invest in rental property to get some monthly income.

You can also try the BRRRR method, which is short for Buy, Rehab, Rent, Refinance, and Repeat. This hybrid model involves buying a cheaper property to renovate and rent it out for a steady income. After that, you refinance based on the new value of the home and repeat the process. This turns a flipped property into a rental asset but still frees some money for new flips.

These two strategies don’t have to be mutually exclusive. With time, they can complement each other, especially when you’re dealing with an unsteady market. With a good strategy, you enjoy both long-term stability and short-term profits.

How REI Lense Can Help

If your real estate investment style leans more toward rentals, tools such as REI Lens can help you analyze potential investment properties. Investors can use it for the following:

• Estimating Expenses: Rental properties come with expenses such as property taxes, maintenance, insurance, and property management fees. This could help determine if the property comes with more expenses than it’s worth.
• Calculating Cash Flow: Rental investments are only successful if you have real cash flow. REI Lense can analyze how much money you will get every month, after the expenses. You get metrics such as ROI, which help you decide between properties.
• Evaluating Key Metrics. REI Lense lets you calculate metrics such as cap rate, cash-on-cash returns, and other metrics that determine the potential of a property. This way, you’ll know not to invest in a financial black hole.

REI Lense gives you access to real numbers you may need to make a smart decision. Real estate investments need a strategy, not guesswork, so this tool can bring some clarity.

The Bottom Line

Both strategies have their benefits, so we can’t say one’s better than the other. The choice boils down to your goals, capital, time, and risk appetite. Use this guide to reflect on which model fits your needs the best. Use tools such as REI Lense to ensure you make a successful investment.