When it comes to residential property in Dubai the reality-dictated answer now is “hold for rental income.” This is due to a number of reasons such as good returns thanks to elevated rents, low mortgage interest rates and hardship selling residential property at present.
Whether you buy a property for the first time or you are an experienced investor or a realtor, there are always some common ways to make money out of the deal. One method is fixing up the home if it is from the secondary market and selling it for quick profit. The second option is to keep it as rental and provide yourself with a stable, somewhat predictable income. But which one to choose? Some residential properties, as for example apartments in the Downtown Dubai, will make great rentals. Others such as villas in the suburban areas like the Arabian Ranches or the Green Community make more sense to sell as quickly as you can. Here are the basic factors that will influence your final decision:
Motivation
If you need quick money or you are unsure about the long term regional real estate market direction, your best option is to buy a property, invest in repairs and then re-sell it for greater value. This is the so-called “flipping” and it can bring you surprisingly large amounts of cash within several months. However, flipping doesn’t mean easy money – it is quite complicated and if you are inexperienced, you can easily make the wrong call and lose money. Renting a home, on the other hand provides passive income and although it takes time, it will guarantee a stable return on investment with handsome profit. But in order to buy an apartment and then rent it, you should have another, primal source of income – a job, for instance. So, the first thing you should pay attention to is your current financial situation and your motivation.
Fix and flip strategy
Once you have realized what your motivation is, there are several things to know about fix-and-flips versus rental properties. The first rule when flipping is to find a house or an apartment that is really cheap. Otherwise, you are risking too much – the repairs could cost you a lot of resources and by the time the property is ready to sell, its value may not cover the expenses. If you don’t have cash for the fix and flip, it may be too expensive – banks charge higher fees and interests for short-term personal loans.
In Dubai, it may be particularly hard to find cheap property nowadays with promising potential for return. Residential units prices doubled during the past two years and not nearly everyone who bought a home is trying to sell it with the aim to capitalize on the new boom talks. You may be really surprised to find a larger number of listing for sale than listings for rent in the local classifieds. The only option is to search for a distressed sale, but even such are not that distressed nowadays.
On the other hand, fixing up the home is not an easy or inexpensive job at all. Since you have bought a cheap property, it will most probably be in a bad condition. In order to make a good deal and a good profit, you will need to repair and fix even the slightest issues. And while experts call flips quick money, it may take longer to sell a home than to rent it. You need to be prepared to wait for several months, if not years, to find a buyer. And the longer you wait the more money you may lose. And while we are on the topic of losing money, you should know that there are many costs concerning both buying and selling a property, including paying interest every month to the bank or the hard money lender, paying real estate agents’ commission, costs related to the closing of the deal such as property transaction fees, housing fees and so on.
Finally, don’t look for the perfect property – it should simply be cheap and good enough to make you profit of at least 20% of the final price.
Rental property
Renting real estate also comes with its benefits and downsides. You won’t be able to earn a lot from the property immediately, but you will make greater profit than from flip for 5-7 years at most from monthly rents. At the same time, the property is yours and for 7 years it should have appreciated. So, you can sell it for more than you initially paid. Basically, the longer you keep it, the higher its market value will get.
When deciding whether to flip the home or rent it, you should take into account the income you expect for it. The type of the property and the current market conditions are also very important – if you are renting one-bedroom apartment in a neighborhood popular among families with little kids, the demand will be lower. If the same apartment is located near the city center as the Downtown Dubai district, in an area famous for its nightlife or business offices, you can set a higher rental price, as it will be perfect for young, single professionals.
There are various factors to consider when deciding whether to sell or keep a real estate property, but the most important of them is the financial aspect. While trading – fixing and flipping – can bring you a good amount of money, renting is in practice investing or building equity, so it can be a lot more profitable in the long term.
