The key to making a successful real estate investment is to buy low and sell high. But when does it make sense to buy low and then rent the property out? There are a lot of different reasons to either buy and flip a property or hold onto it as a rental. The question is: What is right for you? Here are some questions that may help you figure that out.
- Do you need to get your cash out of the property right away? Do you have enough liquidity to survive and accomplish your investing goals? If you are light in the pockets, it might make sense to flip out of the property and put some cash away for a rainy day and then roll the rest of it into your next investment. You could face pretty hefty taxes if you are flipping property short-term, so speak to your accountant first.
- Can you do a cash-out refinance and pull money out of the property, but keep a mortgage on it and then rent it out? This can be more complicated than one thinks. I’m going through this right now. There are many banking laws that will limit you to the amount of cash-out you can get on an investment property. It’s usually around 70% of the value or the purchase price that you bought it for if it’s been less than one year, whichever dollar amount is less. Interest rates will be higher too if it’s an investment property. Also, banks don’t factor in the rental income you are receiving on the property. Seems crazy, right? They only consider it when you can show it on your tax return and the bank can see your tax return with it.
- Is your rental income covering ALL your expenses as well as allowing you to put some money into a reserve account in case you need to make repairs on your property later on? A lot of times properties don’t allow for this. Be a smart investor and please don’t fall into that trap. If you make money every month, you’ll be happy and you’ll be a true investor. If you have bank financing on your property, remember you’ll be receiving tax deductions and you’ll be paying down the principal of your home which all factor into a stronger balance sheet for you.
Flipping property can be great and so can long-term holding and renting. Both have positives and negatives so enjoy the game and make it a profitable one!
Gabe Mellein was voted a Top Real Estate Agent – Exceptional in Service and Overall Satisfaction by Gulfshore Life Magazine in 2012 and 2013. He is the broker of Gulf Pointe Properties, Inc and has over 9 years experience in the SW Florida Real Estate Market. He is a member of The Naples Area Board of Realtors, Bonita Springs – Estero Association of Realtors, Realtor Association of Greater Fort Myers and the Beach, The Florida Association of Realtors, The National Association of Realtors, and is nationally certified in Feng Shui for Real Estate. Need real estate help? Please contact Gabe at: 239.825.2234, Gabe@GulfPointeProperties.com or www.GulfPointeProperties.com