More investors choosing to rent rather than flip
Residential property investors know the drill. For those looking to make investments in the real estate market, there are two major options to consider: rent the building or flip the home in a sale after fixing it up.
Both options have their pros and cons, but lately, more investors seem interested in renting property to tenants than trying to flip, according to a recent report from Auction.com . The report, which is called The Real Estate Investor Activity Report, surveyed investors bidding on property auctions throughout the nation.
Rick Sharga, executive vice president of Auction.com, a leading online real estate marketplace, said investors are more likely to rent property in some areas and flip in others.
"Real estate investors appear more likely to flip a property in those regions where home values are higher," Sharga said. "Higher prices can translate to a faster and potentially more significant short-term return on investment."
On a national scale, the survey found 50.5 percent of investors are looking to rent, with 46.6 percent hoping to flip and 2.9 percent unsure of what they will do.
The numbers skew slightly when breaking down the type of investor. Those working on behalf of another investor tend to flip much more often (60.4 percent to 36.8 percent who rent) and those looking at a one-time purchase are much more likely to rent (72.2 percent to 24.4 percent who flip).
Renting vs. flipping in different areas of the country
Entrepreneur suggested investors should rent out their properties if they can't find a buyer to flip to, but some investors would rather forego the flip and rent from the start .
The Auction.com report found investors in certain parts of the country were more likely to rent than in other areas. Buying property to rent is more popular in the South and Midwest than it is in Northeast. The report indicated renting is generally trendier in areas where home prices are lower.
"The markets with an increase in flipping tend to be those with older, distressed, inventory still available that flippers can often buy at a discount and add value to," Daren Blomquist, vice president of RealtyTrac, said in a press release . "Those discounted distressed properties have become harder to find, but a recent jump in scheduled foreclosure auctions could provide more fodder for flippers in the next three to six months."
Investors in the South were most likely to rent at 57.1 percent. The Midwest was second at 51.8 percent and West third at 50.5 percent. Only 41.9 percent of investors in the Northeast, where many homes are expensive, planned to rent out their properties.
In contrast, investors in the Northeast were most likely to flip (54.1 percent), which was also a popular option in the West (49.5 percent).
The type of auction also seemed to be a good indicator for what the property would become. Investors using an online auction were more likely to rent the property while those at a live auction were more likely to flip the building, according to Auction.com.
Flipping, renting and investing by state
Flipping was very popular in Nevada and Arizona, two states severely impacted by the burst of the housing bubble. Nearly 89 percent of investors in Nevada were likely to flip their properties. Two-thirds of Arizona investors planned to follow the same path.
"The hold and rent strategy seems most popular in markets where home prices are lower, allowing investors to charge a more competitive monthly rental rate and still produce reasonable returns over an extended period of time," Sharga said.
In contrast, investors in Southern states such as Texas and Georgia were much more likely to hold onto the property to rent. Sixty percent and 54.3 percent of investors in Texas and Georgia, respectively, were buying to rent rather than flip.
. U.S. Investors Favor Renting Over Flipping According To Auction.com Real Estate Investor Activity Report™
. If You Can't Flip It, Rent It
. U.S. Home Flipping in Q3 2014 At Lowest Level Since Q2 2009 While Average Gross Profits Climb To New Record High
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