How can I make money from my property? - one of the first questions that one should ask themselves before they enter into the world of real estate investment. For most, the choice lies between flipping or renting out their property. Renting, or letting, refers to the agreement where a monthly payment is collected for the temporary use or occupancy of the property by another party. Flipping, on the other hand, refers to the process of buying a distressed or undervalued property, renovating it, and then quickly reselling it for profit. While both options have their advantages and shortcomings, the decision should only be made after defining the needs and goals of the investor. Here are the main factors can affect the choice between renting and flipping a property.
Financial Situation
It is important to assess the financial situation of the investor. If they have quit their day job, and wish to pursue real estate investment as a full-time career, then flipping properties might be appropriate for them. If done right, flipping can produce a big return on investment in a short period of time, especially when multiple properties are being flipped concurrently. Investors can also rent out their properties to receive their returns over the longer term. Rental income is usually seen as a second source of income apart from their day jobs. It is generally used for retirement savings, further investment or even just to support their day-to-day lifestyles.
Property Market
The state of the property market also has a big role to play in making the choice between flipping and renting. Investors may choose to take advantage of the market when its booming to reap larger profits by flipping property. When the market is cooling down however, flipping property may not be as profitable. On the other hand, the property market has minimal to no effect on rental income. Lease agreements usually are drafted and fixed beforehand, so in the event of a housing boom or crash, the rental income generally remains unchanged. Hence, while flipping property has the potential to reap great profits, rental income is generally much more predictable.
Taxes & Regulations
Some countries have measures to curb flipping, as it is considered to be speculating on the property market. While some have implemented strong measures such as banning the sale of property within a minimum occupation period, others have chosen to impose various forms of taxes. In Thailand for example, investors who wish to sell their property within the first 5 years of ownership are required to pay a special business tax of 3.3% of its appraised value. This is on top of the other property transfer taxes that are imposed, potentially cutting into profits. Investors who opt for flipping property would then need to carefully calculate and assess their resulting profits, to determine if it makes business sense to continue to flip properties. Rental properties in Thailand incur the basic rental income tax, as well as a Withholding tax, that is borne by the party occupying the rental property. As this is predetermined, investors will be able to know exactly how much they make from their property.
Maintenance
Flipping property almost always involves the renovation of the property to make it more valuable. This would involve a lot more time and effort on the part of the investors, as they would personally need to source for reliable contractors to carry out the renovation work. For overseas property investors, this task gets more complicated as it is understandably harder to monitor and manage the renovation progress from a different country. Investors who rent out their properties usually carry out some basic one-time cosmetic fixes for their properties and leave the rest of the regular maintenance issues to the tenant. Property and facilities management companies like Plus Property, even have tenant management and day-to-day property maintenance as part of their suite of services. Overseas property investors stand to benefit the most from these services as they would not have to be personally involved. While property investment can be lucrative, it is important to clearly define what the investor hopes to achieve from the investment. External factors such as the health of the country’s economy and its policies also need to be carefully assessed before investing in property.