Why do investors opt to rent instead of flip?

[Account Closed]

Hi all,

I have watched countless videos on real estate investing. Some investors are all about buying “doors” to rent. Then there are the flippers and developers. Please help me understand why, besides getting monthly income and putting off taxes, people are so stuck on rentals. I understand producing cash flow to demonstrate I have an income to be able to borrow in the future….so I don’t mind starting with a few rentals to bring that in but then I want to transition to building single family homes. Personally I want to PUT people in homes they will OWN. To me it seems while I pay tax on the sale of a single family home, I get a bigger chunk of money to work after each. I just want to make sure I won’t get sidelined with taxes so high it renders the work/sale null and I get little profit. What is the average profit percentage on building a single family home? Any help is appreciated :) 

[Ben Zimmerman]

Flipping is a job, while rentals is an investment.

With flipping, as soon as you stop flipping, you also stop getting a paycheck.  This means you never actually escape "the rate race".  You have essentially traded your current 9-5 job, for a different job.  Yes, flipping can be lucrative (if you know what you're doing), but it can also be highly risky.  There is also a limit to the number of flips you can do at once and thus it's extremely difficult to scale this business model.

Owning rentals on the other hand is *mostly* passive income that appears in your mailbox each and every month, which allows you to free up your most valuable resource -TIME.  This gives you the ultimate in flexibility in life, which is typically what most people actually want.

Legacy:  If you want to pass something down to your heirs, then flipping is taxed at your highest income rate, so those nice profits get quickly eaten by the IRS.  Meanwhile rentals are one of the biggest tax shelters ever created and you will likely never pay income taxes on the vast majority of your wealth.  Over time this leads to an exponential increase in your overall net worth as opposed to flipping.