The proliferation of television shows on real estate investment has geared up many people invest into the lucrative business. There are different types of the real estate investments exist such as house flipping, rental, holding the property and pretty more. But, one question always emerged in the investors’ mind, that’s which one out of the hundreds of investment options is better.
Presently, in the California, house flipping and holding the house for a longer term is gaining more investor’s attention. Which one rock the stage? Before digging in, let’s take a quick glance at both of them:
Fix and flip: The house flipping involves buying the property at a discounted rate, then rehab the house, and then selling it at the good margin within the shortest possible time. The early the house flippers sell the property the more profits they can lock along with less charges.
Buy and hold: In this type of long term investment, the property is bought that require some repairing. After the renovation of the house, it’s generally rented and hold for the longer time unless the owner won’t get a buyer who is ready to buy the house at a high price. With monthly rent, it’s ensured that the extra expenses that include finance rate, utility bills, and maintenance cost should be less than the rent collected, so the monthly profits are guaranteed.
The difference between both types of property investment – Fix and flip Vs Buy and hold:
- Time investment
House flippers use hard money loans as a financial tool to buy the property and fix it, which charges high-interest rates so in order to not let the cost exceeds the profit margin, the fix and flip properties are sold in a short time period.
On the other hand, in buy and hold real estate, the investors don’t have any urgency to sell the property as early as possible because they are getting a steady cash flow in hand via rental income that balances the expenses and keep the investor in the profitable mode. The properties are sold after putting them on hold for a long term.
- Risks involved
In the real estate industry, the market will not fluctuate too often. The house flipping process ideally won’t take longer than six months from purchase to sale, so there are fewer chances that unfortunate fluctuations may impact the bottom line. It’s less risky, even if bought using the house flipping loans.
The buy and hold properties may become a prey to the drastic fluctuations. The investor, if had a need of cash immediately, then selling the hold property at the less market value is the only option they are left with.
- Costs incurred
Although the house flipping is done in a short tenure, but it involves huge expenses from buying to the selling. The flipper has to bear the transaction cost, finance interest rates, renovation expenses, and maintenance cost unless the house is not sold. Besides, in the USA, the short-term capital gains tax is comparatively higher which also adds to the costs. However, hard money fix and flip lenders help, but at the end, it becomes a big figure, which investor has to pay and that adversely affect the profit as well.
The property buy and hold investor also incur all the expenses, but the steady rental becomes a reliable source of income which balances the overheads and still, keeps the investor at an advantage.
Which one is the perfect fit for you?
It’s really crucial to decide the winner between the two types of investment – Fix and flip, and Buy and hold. Both types of real estate investments are unique in their nature and have their own pros and cons. Here, what matters the most is INVESTOR.
Based on the investor’s personality, financial situation, financial goals and risk tolerance capacity, it can be decided on-the-fly, which investment option skyrocket the investor’s career and which not.
Assess all the parameters and begin investing in the type of real estate that favors you the most.