As we get even closer to election time, the debates are already heating up as both candidates’ thoughts and opinions are argued back and forth for the whole country to analyze. In honor of these great debates, it brings up the great debate in real estate: should you invest in a fix and flip or a buy and hold? For real estate investors, these are two of the most common avenues for investing and with them comes careful consideration of whether to pursue one or the other.
Let’s Meet the Candidates
A buy and hold investment is where you purchase a property and rather than selling it quickly, you keep it as a rental long term. On the other hand, a fix and flip investment is where you purchase a property, usually distressed for a lower price, renovate it, and then sell or “flip” it for a profit.
We will go through five rounds of deliberation between both candidates that will address common concerns associated with these two investing strategies.
Round #1: Profits
Fix and Flip: If you are looking for faster cash and don’t want to wait a long time before seeing profits from your investments, then a fix and flip strategy may be the right one for you. This business is all about speed: finding the right property, fixing it fast, and selling it quickly. Through this, investors can sometimes see profits in under six months!
Buy and Hold: Where fix and flip may provide profits quicker, a buy and hold can help you build wealth for the long term. With a rental property, you have the potential to see a steady stream of cash flow from your tenants’ rent, plus with the market typically appreciating when it comes to real estate, if you wish to sell later, in some markets you may see home price appreciation (HPA).
Round #2: Renovations
Fix and Flip: You will need to complete renovations on the property, handle hiring contractors and managing them throughout the project. There are also the chances for unanticipated repairs arising that will require even more time and money before you can potentially sell this property.
Buy and Hold: If you aren’t up to the challenge of dealing with contractors and renovations, then a rental may be a better choice. The amount of rehabbing that is done when you initially purchase the property is typically minimal, but it could potentially have as much rehab required as a fix and flip. There are companies that offer properties for sale that have already been renovated and tenanted if you strictly are looking to just be a landlord.
Round #3: Tenants
Fix and Flip: Clearly, for a fix and flip you won’t have to contend with tenants since the property will only be in your possession for a short period of time.
Buy and Hold: As a rental investor, you will have to make that decision on whether you want the responsibility of being a landlord, finding good tenants, keeping them happy, and dealing with any issues that may come up during their occupancy. Also, as a landlord, you’ll have to make sure rents and associated bills like taxes and insurance are paid.
Round #4: Time
Fix and Flip: What is your time worth? With a fix and flip, you aren’t locking yourself into one investment for very long, leaving you more chances to continue investing in other properties. However, fixing and flipping can also become quite time consuming, between trying to source new properties, handling all the renovations on current ones you own, and then managing the sales of each when completed.
Buy and Hold: Don’t think that just because you aren’t out looking for one fix and flip after the other that rentals don’t require just as much of your time and attention. You still have to oversee the property, unless you hire a management company to do this for you, and handle your tenants and any maintenance issues. Being a landlord can be just as time consuming, so don’t just assume it is easy sailing once you are committed to that buy and hold.
Round #5: Risk
Fix and Flip: Because you only own the property for hopefully less than a year, the chances that the real estate market will change drastically are minor. Therefore, given the shorter duration of the project, price risk is much less when investing in fix and flips because you can better predict what the market value will be when it comes time to sell.
Buy and Hold: Rental investments are kept for years and years at a time, and although they can appreciate in value, you can’t foresee what the market will be like in ten or twenty years when trying to put a price on your property. This increases the risk of a buy and hold, especially if your intention is to sell the property eventually.
And The Winner Is….
The decision is up to you which real estate investing strategy you would go with and will depend on each individual investor. You may even elect to follow both forms of investing, utilizing the profits from your fix and flips to purchase a rental, and then using this steady cash flow from the rental to finance additional fix and flips. The choice is ultimately in your hands investors, so get out there and start investing!
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