Flipping vs. Holding
Some investors are keen on flipping, which means turning properties over fast, as opposed to holding them in the long term. In some situations, holding property results in more wealth in the long term compared to flipping. You might therefore want to consider holding some properties and flipping others. On the other hand, you could use the flipping strategy for some time, and then start holding properties later. So, when should you flip and when should you hold?
The advantages of flipping
With flipping, the main advantage is that the money comes in immediately instead of later. For most people, being sure of getting payment right away is very appealing. In a sense, flipping removes the real estate market from the picture. If you purchase a property correctly, it does not really matter if the market is falling or rising. All that matters is how long it will be before you can resell the property. Remember that if you buy cheap, you will be able to hold a property for much longer.
The advantages of holding
Property holders can make real profits over the long term. Usually, property values tend to appreciate at a rate which is higher than the inflation rate. If you purchase property in the right localities, your annual appreciation could reach double digits. Properties with equity can be used as collateral. You can earn rental income in your retirement years, and eventually pass own the property to your children. Once you own rental property without any debts, you can earn passive income from the rent collected, which can assure you of an income even when you are out of employment.
What is right for you?
The question is not whether holding is better or worse compared to flipping, but which approach is appropriate for you. To find out the answer, you need to ask yourself the following questions:
- Do I need an extra income now or later in the future?
- Am I placed in a high-income tax category which would be greatly affected by earning more income now?
- Does the local real estate market offer opportunities to get bargains, and the same time demand high rents which would cover my overheads if I have to hold on to property?
- Do I have any other savings or income that I could fall back on in the event that my rental properties need major repairs or become vacant?
- Is the real estate market falling or rising at this time?
- Does earning income right away or much later fit in with my long term and short term financial goals?
Many investors begin by flipping houses, and then eventually get into managing rental property, or larger and more intricate real estate ventures. Some people lack the patience for dealing with tenants and the inevitable problems which accompany rental properties. Others look for an extra income by flipping, while others even quit their jobs and make flipping property a full time business.
Make sure you consider all the options, including a combination of holding and flipping properties. Reexamine your financial goals regularly and adjust your strategies to align with these goals.
Stephan is a freelance writer, who often writes about wholesale homes and wholesale property.
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