Pros and cons of buy and hold vs. fix and flip

Ginger Dean

June 14, 2013

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

The most common question prospective and current real estate investors ask is, What's the best property investment strategy to make money? Should I buy and hold the property until its value increases and then sell? Should I just fix the property and flip it for a quick profit? Well, the truth is that there's no straight answer. It all boils down to your tolerance of risk vs. delayed gratification. Let's examine the pros and cons of each investment strategy. Hopefully, you'll be able to decide which route to go after reading this blog.

Buy and Hold

  • Pros. Most real estate investors who buy and hold tend to enjoy great wealth and financial increase courtesy of the fact that the aggregate value of their properties increases significantly. This is an excellent wealth creation strategy. Since the property(ies) can be rented out, this accounts for steady income and minimal maintenance costs (depending on rental agreement). With this strategy, you can also wait out poor market conditions and then sell when the market conditions are favorable.
  • Cons. The downside of buying and holding properties during unfavorable market conditions is that if the investor has an urgent need for cash, they may be forced to sell at a price lower than they purchased and spent on the property. Low maintenance tenants may be difficult to find and unscrupulous property management companies that eat into your bottom line may also pose many problems for the uninitiated investor. As such, newbie investors are generally advised to steer clear of buying and holding because of required time to deal with tenants and maintenance issues that may arise.

Fix and Flip

  • Pros. The first benefit of fixing and flipping is the ability to make profits quickly without tying up your money for long periods. You get to save time and make some money quickly while reducing your exposure to risk. There's also the chance of a higher return on investment. Distressed properties can be bought at really cheap prices and sold for huge gains.
  • Cons. Successfully fixing up and flipping a house takes practice, time and experience. Sure, you can get lucky the first or second time, but to maintain the winning streak, you will need to put in the man hours, spend time mastering and learning how to identify prime neighborhoods, excellent properties (even when they look distressed), and potential profit goldmines. This takes time. Flipping also comes with tax implications, unforeseen challenges and expenses, and high holding and transactional costs.

Now that you know, you can either decide to do one or both. It's your call. Here's wishing you the best.

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