The Thrill of the Flip: Benefits of Renting vs. Fixing Houses and Selling Them

For real estate investors, renovating a property is just the beginning of a project’s financial potential. The real question is: fixing houses and selling them or renting them for a steady income?

Both strategies—fix-and-flip and fix-and-hold—offer unique advantages, but the choice depends on your financial goals, market conditions, and long-term plans.

Let’s compare the benefits and drawbacks of fixing houses and selling them versus renting them. Which option best aligns with your investment strategy?

Fixing houses and selling them: the fix-and-flip strategy

Fix-and-flip investing involves purchasing a property, renovating it to improve its value, and selling it quickly for a profit.

This strategy is popular among investors seeking short-term gains.

Benefits of fixing and selling

1. Quick profit realization: A successful fix-and-flip project allows investors to realize profits relatively quickly, often within 6 to 12 months—possibly freeing up capital for future projects.
2. Avoiding long-term responsibilities: By selling the property, investors avoid the ongoing responsibilities of being a landlord, including property management, tenant screening, and maintenance.
3. Capital for reinvestment: Profits from selling can be reinvested into new properties or used to scale your investment portfolio faster.

Drawbacks of fixing and selling

• Market dependency: Fix-and-flip projects heavily rely on favorable market conditions—sudden downturns in the housing market can thin out profits.
• Tax implications: Profits from flips are typically taxed as ordinary income—possibly resulting in higher tax rates than long-term capital gains.
• Potential for longer holding times: If the property doesn’t sell quickly, carrying costs such as property taxes, utilities, and insurance can eat into profits.

Best markets for fix-and-flip projects

Beyond markets with high demand and rising home prices, look for areas with low housing inventory, strong job growth, and increasing population trends.

Timing is very important—spring and summer are the best seasons for selling homes.

Fixing houses and renting them: the fix-and-hold strategy

Fix-and-hold investing involves renovating and keeping a property as a rental asset, generating ongoing income while the property appreciates.

Benefits of fixing and renting

1. Steady cash flow: Renting a property provides consistent monthly income, making it an excellent strategy for building long-term wealth.
2. Long-term appreciation: The property’s value may increase while generating rental income, offering significant equity gains when sold.
3. Tax advantages: Rental property owners can deduct mortgage interest, property taxes, maintenance expenses, and depreciation, reducing their taxable income.
4. Diversification: Adding rental properties to your portfolio spreads risk—a possible buffer against market fluctuations that might affect property sales.

Drawbacks of fixing and renting

1. Landlord responsibilities: Renting out a property requires managing tenants, handling repairs, and addressing potential disputes—hiring a property manager can help, but this adds to operating costs.
2. Lower liquidity: Rental properties tie up capital, making accessing funds for other investments more challenging unless you refinance or sell the property.
3. Tenant risks: Problematic tenants, vacancies, or delayed payments can disrupt cash flow and increase expenses.
4. Slower profit realization: While rentals generate steady income, it can take years to realize significant equity gains compared to flipping.

Best markets for rental properties

Areas with robust job markets, growing populations, and limited housing supply can be ideal.

College towns, urban centers, and locations with high rental affordability are prime rental markets compared to homeownership.

Comparing profitability: fixing houses and selling them vs renting

Income potential

• Selling: Fix-and-flip projects often provide higher immediate profits, especially in hot real estate markets
  • For instance, a $200,000 investment with $50,000 renovations could sell for $300,000, yielding a $50,000 profit after expenses.
• Renting: Rental properties generate smaller monthly income streams, but the steady cash flow can accumulate significantly over time
  • A property renting for $2,000 per month could generate $24,000 annually, with additional long-term appreciation.

Risk factors

• Selling: Flipping carries higher market risk due to its reliance on short-term housing trends—a market slowdown can reduce profits or make it difficult to sell.
• Renting: Renting is less sensitive to market volatility but exposes investors to tenant-related risks like vacancies or damages.

Tax considerations

• Selling: Flipping profits are subject to ordinary income taxes, which can significantly reduce net earnings.
• Renting: Rental income is taxed at ordinary income rates, but numerous deductions and depreciation help lower the tax burden.

Exit strategy

• Selling: Fix-and-flip projects allow for a clean exit with quick profit realization.
• Renting: Renting provides flexibility. Investors can hold the property long-term or sell it later when market conditions are favorable.

When to sell and when to rent

Selling or renting a property after renovations depends on several factors:

• Financial goals: Selling may be better if you need quick capital for other projects. If building long-term wealth is your priority, renting offers sustainable returns.
• Market conditions: In a seller’s market with high demand and low inventory, selling is often more profitable. In contrast, a buyer’s market with lower sales prices may favor renting.
• Property location: Properties in high-demand rental areas or those likely to appreciate significantly over time are strong candidates for renting.
• Personal bandwidth: Managing rentals requires ongoing effort, so selling might be a better fit if you prefer hands-off approaches.

Financing fix-and-flip and fix-and-hold projects

Hard money loans are excellent financing tools for both fix-and-flip and fix-and-hold strategies. They’re short-term, asset-based financing solutions designed specifically for real estate investors.

Hard money financing for fix-and-flip projects

Hard money loans provide the capital needed to purchase and renovate properties quickly, often closing in days rather than weeks.

This speed is vital for competitive fix-and-flip deals. These loans are typically repaid through the sale of the property, aligning with the short-term nature of flipping.

Hard money financing for rental properties

Hard money loans can also be used for fix-and-hold projects.

Investors often use them to acquire and renovate rental properties, refinancing into a conventional mortgage once renovations are complete and the property generates rental income.

This approach allows investors to secure the property and complete renovations without waiting for traditional financing approval.

Fix and flip vs. fix and hold: The bottom line

Whether you decide to fix houses and sell or rent them, hard money financing offers the flexibility and speed to turn your vision into reality.

By working with lenders like Park Place Finance, you can secure the funding needed to succeed in either scenario and build a thriving real estate investment portfolio.

Get started with our quick online form, or call us at (866) 407-1599.