REITs vs. Flipping Real Estate

bathroom-691341_1280Historically, Real Estate has always been a solid investment outlet with an abundance of opportunity to build wealth. There are many real estate investment options available; however, I will be concentrating on two in particular: Flipping real estate versus investing in Real Estate Investment Trusts, or REITs for short. Flipping property and REITS are an extremely interesting comparison, due to the fact they are on polar opposite ends of the real estate investment spectrum. Each have tremendous financial potential, but like any investment, there are certainly risks to consider.

Flipping Real Estate

Many investors have recently earned a fortune flipping real estate. Flipping typically involves purchasing property for well below how much it is worth, and selling it at a higher price, at or near market value. The principle is simple; however flipping real estate is not nearly as easy as it sounds.

Typically, most of the properties you will be able to purchase for less than market value, require extensive rehabilitation. In the minimum they need smaller repairs, and cosmetic updates. Of course this costs money, and most definitely needs to be factored into your investment strategy.

Anyone interested in flipping a property should bring in a professional construction expert. A good contractor will not only let you know the exact work that needs to be performed, but how much it will cost to fix up the property in order to sell it for the maximum amount. This figure is an enormous factor regarding profitability.

For example, if you purchase a property for $75,000, and spend $50,000 on repairs, and cosmetics, the market value must be well over $125,000 for you to earn a profit.

If you do not have the cash to purchase the property, and make the necessary repairs, and updates, then you will need to carry a mortgage. Factors to consider are the amount of cash required for the down payment, and the amount of the monthly principal, interest, taxes, and insurance. The property could sell extremely quickly; however, you need to be prepared for the fact that it may take several months to sell. Always factor in at least three to four months of mortgage payments when formulating your investment strategy.

Last but not least, you will need to hire a real estate agent to market and sell the property once all the work is complete. Please keep in mind that they charge three to five percent of the gross sales price to be paid upon the sale of the property.

For example, a $100,000 sale pays the agent anywhere from $3,000-$5,000, not too shabby for the agent, but a lot of money is deducted off the top of your profit.

Pros vs. REITS: If you are a hands-on person who enjoys being involved on a daily basis, then flipping real estate may be a great investment for you. There is also the potential to earn a huge profit. Some investors double, or even triple their investments when flipping real estate.

Cons vs. REITS: Flipping real estate often takes up a large amount of your time, and places you in a vulnerable position regarding liability. It can cost a lot of upfront money as well, and the asset takes time, energy, and money to turn liquid.

Bottom Line: If you have the time, and resources, and would rather be a big fish in a small pond, then Flipping can be a great method to invest in real estate.

Investing in REITs

Putting money into REITS also provides investors with an extremely lucrative method of earning enormous profits on their investments. Once you find a particular REIT to invest in, you’re able to sit back, and watch your money grow. Please see some other factors regarding investing in REITs below.

Pros vs. Flipping: When you invest in a REIT, you’re working with multi-million, or even billion dollar companies that control a vast array of properties located around the globe. Investors can rely on the REITs’ expertise in real estate in order to turn a profit on their investments. In addition, REIT investors have zero liability regarding the properties, so if a person slips on the front steps, the investor does not need to deal with it. REITs do not require huge amounts of money to invest, so anyone looking to get their feet wet in real estate investing should consider REITs. They also provide the investor with a means to liquidate the asset quickly.

Cons vs. Flipping: If you enjoy a more hands on experience with your investments, REITs do not provide a lot of action once you make the purchase, or decide to sell it. In addition, REITs do not provide day-to-day decision making for investors that like to control things.

Bottom Line: REITs are a great way to invest in real estate on the local, national, and international level. Investors do not need as much time or resources to partake in REITs as they do in flips. If you would like a less hands-on investment, and prefer to be a smaller fish in a much larger pond, then REITs are the way to go.

Written by GilverBook Team

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