Flip or Landlord

[Sam Mudro]

I would like to get some perspectives around the benefits of flipping a house compared to buying and renting. In terms of the a first time investor which is a safer play?

Also wondering if the first property should be close to home or ok to look out of state if more financially beneficial?

[Ali Boone]

I agree with everyone else so far. Flipping and rentals are two totally different animals and accomplish different things.

Flipping: active income (i.e. you have to work), immediate profit (relative to rentals), major tax hits on the income, bigger due to unknown repairs necessary or schedule or costs for repairs, potentially much higher profit. It's a short-term strategy.

Rentals: passive (i.e. you don't have to work), profit over the long run, major tax advantages, lower risk because it's spread out over time and you can control hindering factors (usually), but less profit and it's not immediate.

I think all new investors should start out with rentals first over flipping because rentals are the less risky way to learn the end game and how to calculate numbers, how to check property quality, etc. Flipping can then use those skills (and those are some major skills) and use them in more advanced mode because there are now more numbers, property quality is more key, and you have to move a lot faster. So I think it's better to start slow, learn the fundamentals, and then apply all of that to a faster-moving higher-risk project such as a flip. Also, rentals will teach you how to be smart about all the money you might make flipping. Nothing like successful flippers being broke because they didn't do anything smart with the big wads of cash!

Local or out-of-state for rentals is also up to you. There are advantages of both. I personally have no desire to see my properties or work on them or in them. Some people like that though. The advantages of having a property near you are you can see what is going on and potentially have more control. The advantages of buying out-of-state are you can always chase the best deals no matter where they are and you don't have to "work" on the property.