The difference between a Flipper and a Rental – Real Estate Investing
There are two basic kinds of Real Estate Investors; Those that want
to buy and flip and those that want to buy and hold as a rental. Each one has a different strategy and approach to buying. Now there is some middle ground, but in general these are the two approaches.
A flipper wants to pick up a home cheap enough that they can use their expertise to do some repairs and then sell it or a profit. Generally they want to do this in a relative quick time frame. Time is money to the flipper. Some flippers have more integrity than others, but the focus of any work they do will be making the house look good and raising the value in the eyes of a buyer. Often this involves a lot of cosmetic repairs and fancy upgrades; like Granite Counter Tops. As a flipper even the costlier sounding upgrades like the Granite counter tops are done on the cheap; using left over granite, granite with minor imperfections, or pieces with lot of seams (but it still looks great and buyers love it). They do a lot of landscaping; often this involves new grass and large swatches of tan bark, maybe some economical flowers planted. Frequently flippers are less focused on anything beyond cosmetic and obvious issues. New Paint and Floors often round out a flip. When I represent buyers I am very carefully with flipper property inspections as often crucial repairs are left undone – if not obvious.
Now I want to make it clear I do not fault flippers or focusing on cosmetics. (Although I do not approve of hiding issues, especially safety issues.) The fact is most flippers are focused on what sellers – they want someone in contract at a good price. They also understand most buyers will wisely be having a home inspection. I have never had a flipper refuse to correct a safety issue when brought to their attention.
The other side of the investor coin is the real estate investor that wants to buy and lease out a home, making money on rents and/or long term appreciation. For this type of an investor a fixer up will work, but they are just as happy with a home in decent shape; now generally speaking they are not looking to pay for a lot of upgrades. They do not want a fancy home. Most renters rent because they cannot buy. Most do not want to pay rent for (or cannot afford to pay rent for) fancy amenities they do not own.
The ideal home for this type of Real Estate Investor is ready to rent when they buy. It may be a little dated and not the fanciest, but certainly functional. It will have solid bones and maybe some hidden things that can be brought out at a future date – like old hardwood floors under the carpet, or a large lot that is not well landscaped. Now the really cool thing for this type of investor is that assuming they do not have to invest big to get it ready to rent and basically just go with older stuff in place, they can then do upgrades when they are ready to sell and get flipper profits.
Now these are broad generalities and there is a lot of other strategies in between. I know investors who like to buy and hold high end homes, even at a loss on rents, in order to sell down the road. There are landlords that feel it pays to do nicer upgrades for tenants – and all of these strategies can work in the right situation for the right investor.
Gene Riemenschneider is the author of The Free Book of Real Estate Investing and is the Owner/Broker of Home Point Real Estate in Brentwood CA; serving the East Contra Costa County Communities of Brentwood, Oakley, Antioch, Discovery Bay, Pittsburg and beyond.