The Real Estate Decision That’s Best For You
This article appeared in the Image magazine August 2017 edition.
When making the choice to invest your money in the housing market, the financial decisions you choose to make should depend on the financial goals you have, which varies among individuals. The question of whether to flip and sell, or buy and hold, has no correct answer, it’s based on a preference and your lifestyle.
RealtyTrac recently reported that the flipping trend, which reached a 10 year high in 2016, has a median gross return on investment of almost 50%, but that is not inclusive of renovations and holding costs. An investment that would provide continuous cash flow, however, would be purchasing a property and renting it out to tenants.
In order to make a well-informed decision, it is important to understand what each option entails, and which will prove more beneficial to you. To quickly sum up the processes of house flipping, you (the house buyer), would purchase, update, and quickly sell a property, in order to maximize profit and minimize “soft costs,” which include monthly bills, property taxes, and maintenance bills of any kind. It is important to acknowledge that the less time a house flipper owns a home, usually the better the profit.
As for the long-term real estate investor, you would hold onto the house you purchased for a longer period of time, and your profit would come from rent. After the monthly costs of financing, taxes, utilities, and other maintenance is covered by your tenant, the remaining funds can be pocketed. Noted, while both options are profitable, they do require expertise and willingness to take on risks concerning property conditions.
Without a doubt, with every investment there are pros and cons. Depending on the decision you make, different components will come into play. Some pros of house flipping include, first and foremost, quick cash. A project that can potentially take less than a year can bring about a fast profit. In addition, the return on investment is higher, and the loans taken out on purchasing the property, if it is very distressed, can be lower than a traditional bank loan on properties.
On the flip side (pun intended), there are still high costs involved, the short term capital gains tax is high, and if you are inexperienced in the field, additional expenses typically include hiring a professional with education and experience.
As for long term investors, the longer an owner holds onto a property, the greater the potential for accumulating wealth. Being a landlord comes with the pro of having a steady and reliable source of cash flow, and there is no need to immediately sell your property.
However, the value of the rental property and, ultimately, the profit you make, is dependent on the market itself, as opposed to you, the landlord. Additionally, finding good tenants is a difficult task that requires time, energy, and patience.
So, should you flip and sell or buy and hold? There is no definitive answer. The paramount factor of this investment decision is you. Your choice depends on what you are looking for financially, and your lifestyle. It’s a choice only you can make. You
can listen to the advice of others, but remember what worked for them, may not work be what’s best for you. The only way you can have true, well-informed input is by obtaining experience of your own, independent of the method you choose to begin with—flipping or renting.