Flipping Versus Buy and Hold

As both an active real estate investor and a real estate broker associate who caters to investors, I have the conversation about Flipping versus Buy and Hold a lot.

So, I wanted to share with you some insight into the differences I see between the two.

First, I need to admit that I am primarily a buy and hold investor, but I do occasionally fix and flip a property to supplement cash flow needs.

With that being said, here is how I see the differences between buying property to immediately resell or buying properties for long-term wealth accumulation.

Buying properties to resell immediately requires that you have systems and a team in place to help you purchase, fix up/rehab, market and sell properties.

Buying properties as long-term rentals requires that you have a team to help you purchase, fix-up the property for tenants, and get houses rented. Either you need a property manager to manage your tenants or you need to manage your properties directly. Even with a property manager, you still need to manage him or her to make sure he/she is performing the job satisfactorily.

In my experience, a fix and flip property requires more personal interaction. I find myself more involved with handling the purchase, and overseeing the rehab and sales process. On the other hand, my experience with acquiring rental properties takes very little of my time. Perhaps this is because I have great teams already in place.

The biggest difference between buying houses for fix and flip versus buy and hold comes down to finances. Both require cash or access to cash via credit or a partner, but rental properties that you buy to hold long term with relatively high levels of debt, typically don't produce a significant amount of income in the short run. In fact, having a positive cash flow of $100 to $200 a month, when you factor in repairs between tenants and improvements to the property like the occasional roof, means that you really don't have any cash flow at all when you look at the numbers over a period of several years.

On the other hand, buying to fix and flip can generate chunks of cash relatively quickly... in a few months on a fast rehab and sale.

So, if you are trying to generate immediate profits, I suggest looking at buying to fix and flip. If you have income from another source and are looking at real estate as a wealth building asset, I would strongly suggest you consider long term buy and hold.

Until my next post,

James