A huge pile of material containing millions of books, videos, blogs and articles present on the internet compares investment strategies and the nature of businesses. Comparison of real estate business, especially flipping houses, with other investment strategies such as bonds, are one of the most important topics discussed in that material. After all, people have invested an enormous amount of their hard earned money in both, bonds and real estate.
Although the investment debate about either is it worth flipping houses for a living or is it better to invest in bonds is yet to yield any definitive results, some people are ready to bet their lives on the real estate. Why? According to research average cap rates of the ten year US Treasury is 2.6%, while the average cap rates of the actual estate range between 4.5 to 7.5 percent depending upon the market.
Moreover, although bonds are relatively risk-free, especially government bonds, the real estate business has proven from time to time that it can be a wealth building vehicle for big investors. We have compiled a list of reasons why is it worth flipping houses for a living as compared to investing in bonds. But before we do that, let’s talk about what exactly bonds are and how they are different from stocks and other investment strategies.
see also: What is virtual Wholesaling?
Often used interchangeably by people, bonds and stocks are relatively distinct from each other. Bonds, unlike stocks, yield fixed returns. It means that bonds work as small loans that that one gives to either government or corporate and they return it with a fixed interest. It makes bonds relatively safer than most of the investments.
Following are some of the reasons why flipping houses for a living is a better idea than investing in bonds.
1. Less Risk Means less Return
Although the bonds are relatively safer than flipping houses for a living (if not done properly), the returns on the bonds are also way less than you get from investing in house flipping. However, even some people claim bonds to be completely risk-free, many factors such as inflation can affect profit on the investment in bonds.
Flipping houses for a living, on the other hand, might be a little risky. You can get high profits on your investment. All you have to do is control your budget and negotiate your selling price to maximize your profit.
Inflation can be defined in simple words as a sudden increase in the prices of services and goods. In other words, the value of your money decreases which means you need to pay more to buy the same service or products that you bought before inflation. Now, if you are investing in bonds during the inflation, you might need to pay more and when it’s time to get the returns you might get less because inflation period is gone.
However, if you are flipping houses for a living; even though you might need to pay more for the renovation, you will have a chance to sell the house for a higher price. Why? Unlike other investments, real estate is directly proportional to inflation. It means the prices of the property increases with the increase in inflation.
3. Tax Advantages
Taxes are one of the biggest costs for anyone, let alone someone flipping houses for a living. However, there are numerous ways to combat taxes in real estate business. In real estate business, everything from residential to commercial, from houses to apartments and warehouses has some form of tax incentive associated with it.
While purchasing an investment property, one can pay in parts through leverage and that too with the ability to partner up with people for the investment. Bonds, on another hand, offer ZERO leverage as they require 100 percent upfront investment.
Moreover, the ability to pay in parts via leverage allows you to invest in multiple properties at once and get returns on all of them. (More properties, more profit.)
5. Cash Flow
Bonds usually take longer to cash than flipping houses for a living. If done properly and multiple properties are bought and sold with an interval of 15 days – 1 month, you can create a cash flow. After all having cash flow is what everyone needs.
Unlike bonds, that is a small loan that companies get from investors and return some interest on it, the demand for real estate will always increase. Companies offer bonds only if they need investment, while people are always looking for a house to live in; be it on rent or in their house.
7. Control over Investment
Unlike bonds, where once invested, you don’t have any control over your investment. Flipping houses for a living let you have full control on your investment. You can negotiate prices when purchasing a home, you can call shots for the renovations you need in the house, you can choose the contractors that are cheap and good to increase your chances of making a good profit, and finally you can negotiate the selling price as well.
Flipping houses let you have full control on your investment. Even though it has some risks associated with it, won’t you like to be the one calling shots? Moreover, there is a chance you can increase your profits by creating a budget and logically using your cash.
8. Exit Strategy
Although people might argue that real estate is risky, you always have the option to sell your properties at wholesale to either hit the break even or minimize as much loss as you can. You can even make petty cash with the whole sale.