Letting vs. Flipping: Best Property Investment

There’s a reason why all the rich people invest in real estate. It’s one of the most time-tested ways to generate and preserve wealth, and it can make a rewarding, tangible alternative to stock and crypto. 

But before you try a slice of the property investment pie, it’s crucial to determine precisely how you will invest in real estate. There are two main paths: letting and flipping. One involves buying a property and making an income by renting it out to tenants. The other consists of purchasing a property, adding value through home improvements, and then selling it for a profit. This post compares the two to help you decide which property investment model is best for you.

Buying to let

Becoming a landlord is the most popular option. It involves allowing tenants to live in a property that you own and charging them rent. Ideally, this rental charge should cover the mortgage and other expenses, such as maintenance (which you are responsible for), while providing a small return on top. 

Buy-to-let properties are typically funded using specialist buy-to-let mortgages. A broker can help you compare these loans. Many landlords will work with a tenancy agency to help them find and screen tenants. These companies can also help with lease agreement writing, rent collection, and maintenance – but you will pay an extra fee for their service. Having a handyman and a lawyer on call is recommended if you’re letting a property out. 

The pros

• Passive income: A buy-to-let property can provide a passive income each month to help top up any other income you have. While some work is required to maintain your property and secure tenants, it’s generally not as much work as property flipping. 
• Potential for long-term appreciation: Letting is a long-term investment. During this time, the property may appreciate, giving you greater potential returns if you decide to sell. 
• Lower risk: Letting out a property comes with its risks, but generally has a better success rate than flipping.

The cons

• Slow returns: Any returns you make through a buy-to-let property can be slow. There may even be months when you barely break even or incur a loss due to repairs, late rent, or an inability to find new tenants. 
• Landlord obligations: Properties must meet specific standards, which require carrying out necessary repairs. You also need to communicate appropriately with tenants, comply with local rent controls, and avoid discrimination during tenant vetting. 
• Risk of bad tenants: Taking on bad tenants could result in property damage or rent arrears. Tenant background screening can help to reduce the risk of this, but it does not prevent it. 

Buying to flip

Flipping a property typically involves buying a fixer-upper (a relatively cheap property that’s not in excellent condition) and rapidly increasing its value through improvements. The key is to spend as little as possible renovating and repairing the property while adding as much value as you can, so you make more money than you spend.

There are specialist buy-to-sell mortgages (also known as bridging loans) that you can use to buy these properties, in which you may not have to make any repayments for a specific period. The aim is to finish all improvements and sell the property as quickly as possible before repayment is necessary. You can hire tradespeople to help carry out improvements on your property, or you can carry out these improvements yourself to save money (known as building ‘sweat equity’), provided that you feel confident enough. 

The pros

• Quick significant returns: Flipping allows you to make a large sum of money in a short period of time. It is ideal as a short-term investment strategy if you’re hoping to make a lot of money quickly. 
• No stress of tenants: You don’t have to deal with the stress of managing tenants when you flip a property. The only interaction you need with other people is when you buy and sell the property. 
• No ongoing maintenance: Flipping condenses all the renovation work into a short period. After you’ve sold the property, you don’t have to worry about doing any more improvements, whereas letting requires continuous property maintenance.

The cons

• Higher risk: Flipping comes with many risks, such as unexpected repairs, accidental overspending on improvements, or struggling to sell the property in time. Making sure you arrange a home inspection beforehand, carefully budgeting improvements, and setting strict schedules and deadlines are key to reducing significant losses.
• Larger upfront costs: You often have to invest more money upfront when flipping. Not only do buy-to-let mortgages require large down payments, but you also need to budget for all the improvements. 
• Time-consuming: If you want to save money and renovate the property yourself, you’ll need to be willing to give up a lot of free time. If you already don’t have much free time, you could find it hard to carry out the necessary improvements on time. 

Should you let or flip property?

Letting and flipping can both be excellent property investments, but are better suited to different lifestyles and goals. 

You’re better off considering a buy-to-let property if you’re looking for a long-term passive income in which you don’t have to dedicate too much of your own time. It can be a good investment for funding a retirement or for simply giving you a bit of extra money each month. Ideally, you should be a people person and a good communicator – this will help you maintain good relationships with tenants.

Property flipping, meanwhile, is better suited to those looking to make a large sum of money quickly. It requires a higher appetite for risk, and you may need more free time to devote to it. Having strong DIY skills (or even being a tradesman yourself) can also be valuable when considering this path, as it helps you save costs and maximize returns.