If you are buying property as a form of investment, you have one big question to ask yourself – flip or rent? Flipping a property involves purchasing and usually upgrading it before selling it at a profit, usually within a short timeframe. Renting a property, meanwhile, involves collecting rent each month from tenants. Here we look at the pros and cons of both options.
Flipping a property
One of the key benefits of flipping your investment property is its quick turnaround time, meaning you make a profit usually within a few months. It is often a good move for someone who enjoys a property project and knows how to get it done.
However, when flipping property, you are at the mercy of the housing market. Any dip in this could make it more difficult to make a healthy profit. You will also have to work on the property and oversee its upgrade and future sale, meaning it is an active form of income. Flipping property requires a large amount of capital to begin with, while repair work can often be costly and sometimes yields some unexpected expenses too. Plus, any profit you do make on the house flip will be subject to Capital Gains Tax. This can be as much as 28% of the profit you make, depending on your income tax bracket.
There are also costs involved with selling a property, including estate agent and conveyancing fees. If you need a fast transaction, in Berkshire, for example, working with Ascot solicitors and firms such as https://www.parachutelaw.co.uk/ can ensure the transaction proceeds safely and at pace.
Renting a property
One of the main benefits of renting is that you get an ongoing income from a passive source. If you buy smart and set the right rental price point, you should be able to generate enough to cover the mortgage plus some profit for you. Property is generally considered a good long-term investment, so it is likely that the value of the property will increase as the years go by while you build up equity. There are also some tax benefits that come with being a landlord. You can claim tax relief on a wide range of costs, including, repairs and maintenance, agents’ fees, accountants, property insurance and landlord insurance, as well as a 20% tax credit for mortgage interest. In fact, figures show that in 2020/21, landlords clawed back on average almost £7,000 in tax breaks.
When renting out property, however, you are subject to mandatory income tax on profit made, which can often be a complex procedure. Having an empty property is expensive and should be avoided at all costs. Managing a rental can also be time-consuming but hiring a management company can be costly. There can also be challenges with occupants, including late rent payments and emergency repairs.
Which is best for me?
Whether you flip or rent a property depends on your personal circumstances, what you hope to achieve and the current housing market. If you are looking for a short-term return and the market is stable, then flipping could be for you. But if a steady ongoing income is what you seek, then renting could be preferable. It is important to weigh up all of these factors first.