Which is preferable: house flipping or real estate investing?
To arrive at an answer, it helps to define each term and put each one in perspective.
House flipping is the process of buying a property and then reselling it at a profit in the quickest period manageable. A house flipper tries to make the most money within a very short period of time, thus the word flipping. He/she does not hold onto it for the purposes of income. In fact, the shorter period of time the house flipper holds the property, the better their profits usually are.
Real estate investors usually want to keep the property for income then selling later after he has gotten rental income.
Real estate investors may buy with the intention of selling later, but may hold onto the house for many years. Many people refer to this as “buy and hold real estate investing”.
Is real estate investing or house flipping right for you?
The most major difference is a house flipper wants quick cash profits and real estate investors want appreciation and income from rent
A house flipper aims to buy at a below market rate. In doing it this way, the house flipper locks in fast profits.
Generally, the home will be sold at a price significantly less compared to its selling price (in the cover anything from fifty to ninety percent below the prevailing market prices).
Buying and renovating a home is the easiest way to house flip. The house flips, buys, renovates and sells all within a few months.
Renovating is much cheaper as one can precisely estimate the cost of materials and labor required to do it. It is usually possible to acquire experts who identify the certain refurbishments required and the refurbished house will have a really nice look for resale.
This permits the house flipper to get a fast market for the house and at the same time fetching a very good price for the house.
House flipping tends to be more hassle-free than real estate investing especially where the flipper is just buying a house and selling it without doing any renovations.
Dependent on market conditions and location, the house flip professional can make a higher return of their invested dollars in shorter period of time if he flips the house quickly. The real estate investor holds the property and rents it to renters, thus making cash flow instead of a quick buck.
In buy and hold real estate investing, the scheme is more long-term and for investors looking for a steady income. A big advantage to buy and hold real estate is that the real estate investor does not need to sell immediately and can wait for market conditions to improve, then worry about resale when the time comes.
This of course has many advantages, but the largest of which is that you can buy the property once and then hold onto it for a very long period of time and enjoy the benefits of passive income. Also, if you claim yourself as a real estate investor on your tax forms, you can also use the income from your real estate holdings as a deduction against your earned income. This is a large advantage if you find yourself in a high tax bracket come tax time.
Additionally, the profits fetched as a buy and hold real estate investor can also be higher if the investor holds onto his real estate for an extended period of time. Long term price appreciation in buy and hold real estate investing can be quite lucrative in this regard. You can simply sit out the fluctuations in the real estate market and sit out the downturns, while waiting for the opportune time to sell – all the while accumulating cash and realizing a steady cash flow from your tenants.
Although there are many benefits to both kinds of real estate investing, I personally like house flipping. But buy and hold real estate investing is very cool too. In fact, I do both: one for immediate cash infusions and the other to create a level of steady income.
What do you think is the best, buy and hold real estate investing or house flipping?
Mike LaCava is a full time real estate investor located in Southeastern Massachusetts.To find out more about Mike as well as how to make money flipping houses and his specialty how to flip houses with no money, check out his website where you can get more great information on real estate investing.