Some investors focus on flipping—that is, turning properties over quickly, rather than keeping them long term. In some cases, holding property generates more long-term wealth for you than flipping. Therefore, you may consider flipping some properties and holding others. On the other hand, you may consider using the flipping strategy awhile, and then begin holding properties later. The big question is, “When should you hold versus when should you flip?”
The Advantages of Flipping
The main advantage of flipping is that you get your cash out immediately rather than later. Flipping in a competitive market will be like trying to drive up a 90 degree hill. If you are able to buy a property correctly, then you can receive a paycheck immediately but you will have to keep buying properties correctly to receive a consistent paycheck similar to a rental property.
The Advantages of Holding
Property holders can generate true wealth over the long term. Historically, property values appreciate at a rate greater than the rate of inflation in the United States. If you buy in the right neighborhoods, your annual appreciation may reach double digits. You can use properties with equity as collateral. You can provide rental income for your retirement years, and you can pass property down to the next generation. Once your rental properties are owned “free and clear,” you have passive income from rents paid that gives you an income even when you’re not working.
What’s Right for You?
The important question isn’t whether flipping is better or worse than holding, but which strategy is right for you. To discover the answer for yourself, ask these questions:
1) Do I need additional income now or in the future?
2) Am I in a high-income tax bracket that would be adversely affected by more income now?
3) Does my local real estate market present opportunities to acquire bargains, yet still command high rents that would cover my expenses if I need to hold on to the properties?
4) Do I have other income or savings that I could tap into in case my rental properties become vacant or need major repairs?
5) Is the local real estate market rising or falling at this time?
6) Does bringing in income now or later fit into my short-term and long-term financial goals?
Most investors start out flipping houses, and then gradually work into managing rental houses or becoming involved in larger, more complex real estate projects. Some people don’t have the temperament to deal with tenants and the headaches that come with rental properties. Some look for side income by flipping. Others want to quit their jobs and make flipping houses their full-time business.
As you can see, many investors were once in your shoes making these decisions. Be sure to consider all options, including a mixture of flipping and holding properties. Reevaluate your financial goals on a regular basis and adjust your real estate strategies to support these goals.