The coronavirus pandemic has turned just about everything on its head. The real estate market is no exception.
With many real estate agents saying this is the hottest market they’ve ever seen, both housing sales and prices have reached record highs in 2020.
If you’re looking to get in on the action, you might be wondering whether it’s better to flip or rent property during the time of COVD-19.
Let’s take a look at the pros and cons of each, as well as how they are uniquely affected by the pandemic.
Pros and Cons of Flipping Property
Flipping property can be a quick way to turn a profit. When you take on this type of project, you can learn a lot about your local market, the real estate market in general, and the construction process. You’ll also develop buyer insights and increase your network.
On top of that, flipping houses can be a great source of personal pride. Having the vision to turn a home from undesirable into appealing can take a lot of gusto, and it can feel good to have been the one to make it happen.
On the other hand, there are some risks associated with flipping properties. You can end up losing money if your expenses are higher than anticipated, if your taxes are increased, and if you don’t have an understanding of capital gains tax before buying.
Holding costs can also add up if selling your property gets delayed. Additionally, it can be stressful to manage the whole process.
Pros and Cons of Owning Rental Property
When you purchase property wisely, owning a rental property can be incredibly lucrative. The monthly mortgage and other expenses can be supplemented by the rent you receive. In an ideal situation, your property is also appreciating over time.
If you own several rental properties, the income you receive from rent might be able to justify you quitting your day job. Everyone has different financial goals in life, but for some, being a full-time landlord offers them the freedom and funding they desire.
There are also a number of tax benefits that you are eligible for the property owner. You will be able to deduct a number of the costs associated with being a landlord.
On the flipside, being a landlord can be stressful. If you don’t hire property management, your responsible for any issues the tenant have with the property every single hour of the day and every day of the year.
Being a landlord can sometimes be a breeze and sometimes it can be a real headache. Depending on where you live, the landlord-tenant law may be more or less favorable to the landlord. It’s important to understand the federal, state, and local laws, before diving into becoming a landlord.
Impact of COVID-19 on House Flipping
There have been a number of factors that impacted house flippers.
For one, there has been less inventory on the market since the coronavirus hit. This means that there is less competition when you are listing your property for sale. This can make your property have many more prospective buyers and increase your sale price.
On the other hand, it’s possible that there will be a number of foreclosures in the future with landlords unable to continue holding property that has tenants who aren’t paying rent. The economic impact of the virus could also leave many families in the difficult situation of having their house foreclosed. If this happens, it’s possible that prices will drop, meaning that it could be a good time to buy and flip property, but maybe not the best time to sell property you already had in your portfolio.
There has also been an increase in housing demand recently. This demand is not everywhere, as dense urban environments like New York City and San Francisco are less appealing to people in the time of a global pandemic. This means that new areas of the country are having housing booms, while the old standards are seeing a decline.
Home values have also been increasing since COVID-19 hit. This is because of historically low-interest rates as well as the low supply of homes.
As you can see, the coronavirus pandemic might offer an appealing opportunity for those who flip houses. However, you won’t want to get caught buying at a high price if the market does, in fact, get flooded with foreclosures sometime in the future.
Impact of COVID-19 on Being a Landlord
One of the biggest concerns for landlords in the time of the coronavirus is the eviction moratoriums that have been instituted across the country. These moratoriums are steps that the federal government, as well as many counties, cities, and states had taken to try and minimize the negative effects of the coronavirus on Americans. Unfortunately, the eviction moratoriums can end up putting landlords in a difficult financial situation.
Depending on what state you live in as well as your county and city, there might be more or less tenant-friendly eviction holds in place. This can mean, in a worst-case scenario, that you have tenants living in your property that they are not paying rent for. At the federal level, the latest order from the CDC extends the residential eviction ban until March 31, 2021, but this could be further extended at a later date.
Are You Planning to Flip or Rent Property This Year?
As you can see, determining whether you want to flip or rent property in 2021 is a matter of personal choice. There are significant potential benefits as well as risks to both. In the time of coronavirus, a lot is still uncertain, so one can only try and project the future of the market as best as they can.
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