Flipping Homes Vs. Renting Homes… Which is Better?

You wouldn’t believe the battle I have with clients over flipping homes vs. renting homes. Everyone wants to buy homes to fix up and resell. Nobody wants to buy a home and hold it as a long-term rental property.

The real underlying decision someone considering these two options really becomes:

Do I want to become a home builder, or would I prefer to be a writer with published books?

A home builder builds a home, and if all goes well, makes a profit of $20,000 to $40,000 on the project. Once the project is complete and they’ve collected their check at closing, they’re done. There is no additional income or profit available. In order to make any more money, they’ve got to go build another home.

Work… get a check. Work… get a check. Work… get a check.

No worky… no checky.

Flipping houses is a job and you don’t get paid unless you work.

Even worse, the profit on a flip is fixed based upon the final sale price of the home. No matter what you do, you won’t be able to make any additional profit on the deal. Sadly, this profit can disappear very quickly if you encounter unforeseen problems in your renovation.

Who wants another job?

The investor who focuses on investing for the long-term in rental properties enjoys annual income for life. They work to buy a property and get it rented to a quality tenant and then they sit back and collect rent checks each month. This is the same as a writer who works to write a book and then sits back and collects royalties from their book sales.

Work… get a check.  No worky… still get checky. No worky… get even more checkys.

When the writer wants more checks, he or she simply writes another book. They work again for a few months and then start collecting two checks each month going forward. These checks tend to compound on top of each other. The reason why is because every time they work they get paid multiple times from their effort. They’re still getting paid from their first book as they write and complete their second book.

Even better, the profit on a long-term rental is unlimited as you collect more and more income with each passing year. One rental home that pays you $8,000 a year can ultimately generate $160,000 of income in 20 years, $320,000 of income in 40 years, and $480,000 of income in 60 years. There is no fixed profit and you increase your profit annually. You can even leave your rental property to your children and they’ll collect checks each month throughout their lives.

You can’t compound home flips because you’re not still getting paid from your first flip when you’re working on your second flip.

This means investors who flip homes really aren’t investors. Instead they become employees and have to continue working to get paid.

Flipping is a j-o-b and your boss will want you to work evenings and weekends for months!

1 Comment

  • Paul

    Reply Reply December 24, 2014

    Rob,
    Great analogy! What better way for the average person to build wealth. Make a down payment to obtain ownership, then let someone else pay you to let them purchase the asset for you! I’ve been teaching young investors this for nearly 30 years.
    Merry Christmas, Paul

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