Joe Homs compares renting and flipping in California real estate. A $600,000 rental yields $48,000 gross annually; a $400,000 flip with $100K rehab nets $100,000 profit faster. He argues flipping generates quicker returns, then recommends reinvesting into rentals for passive income.
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Are you considering getting into real estate but unsure which strategy to pursue, renting or flipping? Stick around because today I'll help you decide which path might be the best for you. Hi, I'm Joe Homs, your real estate broker, mentor, and investor. Today we're diving into the 2 main real estate strategies. Renting and flipping. These strategies differ significantly, and understanding their nuances can help you make the right decision for your investment goals. Let's talk about renting first. Renting out properties can provide a steady stream of passive income. Once you have tenants, the property generates income month after month. However, it comes with responsibilities. You need to handle property management, deal with tenants, and ensure the property is maintained. Now let's look at flipping. Flipping houses can be quick and significant profits. You buy a property at a lower price renovate it, and sell it for a higher price. The profit can be substantial if done right, but flipping involves higher risks. The market can fluctuate, renovation costs can spiral, and there is a significant time commitment involved. Diving deeper into rental strategy, renting is a great way to build passive income and long-term wealth. For example, you purchase a property and after some minor renovations, you rent it out. Over time, the rental income can cover the mortgage and generate additional profit. Plus, the property's value typically appreciates, adding to your wealth. However, it's not entirely passive. You need to manage the property, handle repairs, and deal with tenants. Alternatively, you can hire a property management company to handle these tasks, which will eat into your profits but can save you time and stress. Think about it. If one big-ticket item needs to get replaced, There goes all your cash flow. Let's compare that to flipping. Cut to the whiteboard. Okay, so let's talk about whether you should rent a property, and we're talking here in California, whether you should rent a property or whether you should flip a property. So for example, you know, we're going to take a property value of $600,000. Remember, we're in California. And we're going to write rent up here, and then we're going to write flip over here. $600,000. Okay, so if you use a 1% rule, then rent at this property should be $6,000 a month. And I can tell you that you're probably not going to get $6,000 a month on this property. More than likely it's going to be around, let's say, $4,000. A month. So, um, take $4,000 a month, 10 months is $40,000, and then another $8,000. So a year you're making $48,000 in a year. Now this is total income coming in, so you have to subtract What your mortgage is and HOA, property taxes, a bunch of other stuff that may be involved in this generating of this income. So you're not going to get the $48,000, you're going to get a lot less. Okay, so now let's compare that to a flip. So here's a flip, and let's say I, I purchased this property at $400,000. Okay, I've got a $200,000 spread there. I put $100K into the rehab, and, and then at the end of the day, so I have $500,000, and at the end of the day I sell it and I make $100,000 on this property. So profit. So my question is to you, even if you're making $48,000 and you're not subtracting out the expenses here, what would you rather do? Would you rather make $48,000 year 1 and hold on to this rental, or would you rather make a $100,000 profit right away and then take that money and move on to the next one? So this is why renting in California really doesn't pencil out at all, is because you just don't have enough income coming in. And let's— and, you know, honestly, let's say at the end of the day you're making $10,000 a year Okay, so if you're making $10,000 a year here on rentals, how much time does it take to make $100,000? It actually takes 10 years to make that. So do you want to wait 10 years to make the same profit that I'm making if you flip this property in a year? So that's why I always say flipping is a better alternative here in California because you're going to make your profit right away. So you're So you're going to make $100,000 here, you're going to move on to the next project. Maybe you're going to do 3 of these a year. You're going to make $300,000, but you're still only making $10,000 a year on this rental that you bought. So I encourage you to flip properties, learn how to flip properties. If you want to learn how to flip properties, reach out. Thanks, Joe. Whether you choose to rent or flip, each strategy has its own set of advantages and challenges. Renting can provide steady long-term income and wealth, while flipping can offer quick substantial profits. The right choice depends on your individual goals, resources, and risk tolerance. What a lot of investors will do is flip for the active income And then once you've established a nice nest egg, invest the returns into a slower growth, more passive strategy. Don't forget to hit that subscribe button.
