Buy and Hold or Fix and Flip? Which Strategy Works Best?
Real estate investors face a difficult choice; should you buy and hold or fix and flip a property? Which option is the best? Read on for insights.
Buy and Hold
When it comes to buy and hold investing, investors purchase and hold on to properties with no immediate exit strategy (for long-term purposes).
This is done by buying a property, renovating or rehabbing it if necessary, and then renting it out at a monthly rate. Investors earn money in two ways; from the monthly cash flow from the rent and through the asset’s appreciation in the long run. It is a great way to generate continuous cash flow and amassing wealth.
Steady cash flow from the monthly rent
High leverage allows you to invest in multiple properties.
Tax advantages like tax deductions from depreciation and deferred taxes.
Investors realize high returns on investment since the asset appreciates in value, not only the amount invested.
Management responsibilities fall on your shoulders.
Maintenance costs and vacancies can impact the cash flow.
Capital improvements may eat up the cash flow.
Fix and Flip
If you are looking to get a quick profit, a fix and flip may be the right move. You can purchase undervalued properties with minimal improvements, fix them, and sell the property quickly.
The property is bought at a discounted price in a suitable location, then renovated and sold for a monetary gain. This investment requires a lot of skill, strategy, and high-risk tolerance.
You can make a quick profit.
No leasing risks
There is a Time Value of Money advantage since the capital is tied up for a shorter time.
There is no need for property management.
Flipping frequently can generate a steady cash flow.
Requires a lot of experience
The amount of money needed to buy and renovate the property can be high
Renovating the property requires a lot of skill. Others opt to hire professionals, which may cost them some of their profit.
What strategy should you choose?
There is no clear-cut answer to this question. The strategy that works for you might not work for someone else. Choosing the right strategy will depend on the market conditions, your skillset, and your experience. Capital and investment goals also feature. Your investment goals can also help you find what strategy will realize the best returns for you.