Investing in real estate allows an individual to tailor their entire experience around their own expectations and desires. Regardless if your personality is speculative or you are more of the conservative type, there is an investment strategy for you. Two of the more popular approaches to investing deal with flipping and holding on to properties long term. These two couldn’t be more different , but they are both an integral part of the business. Before you dive in and start buying real estate, take a minute and find out what kind of investor you are. Will you benefit more from flipping a property or renting one out? The answer will be determined by your particular goals.
House flipping is the process of buying and selling a property in a short amount of time. This works for investors who want to turn as many properties as they can over in a given time-frame. Their goal is to get discounted properties, fix them up and sell them either to another investor at a discount or an end buyer. This sounds easy enough, but there are many potential roadblocks along the way. First, you must find the right properties at the right price. This was much easier when foreclosures and short sales were rampant. However, there are still great flipping opportunities for those who know how to find them.
If you ask any landlord, they will probably describe their business as a love hate relationship. The idea of having someone else pay down your mortgage or provide you with positive cash flow every month is an investors dream. The flip side is that you need your tenant to cooperate with you and take care of your property and pay on time every month. Things are great when this happens, but awful when you have to deal with evictions and property damage. If you have a long-term outlook, “landlording” may be the strategy for you.
There are pros and cons with either one of these strategies, as both have the possibility of being wildly successful or completely damaging. You should never dwell on the negatives, but you should consider the worst case scenario. During a rehab, you can quickly go over budget if your numbers are not accurate from the outset. This will lead you to try to sell at a higher price to recoup the difference. If that doesn’t happen, you could lower your price and end up breaking even or even taking a loss. The obvious downside with being a landlord is to have your tenant stop paying. This leads to months without checks coming in and you having to cover it out of your own pocket. Ideally, you will have reserve funds set up.
There is no right or wrong strategy for investing in real estate. Like most every other form of investing, a mix of both is usually the best approach. If you have a couple of flip projects and a portfolio of producing rentals, you will be better equipped to handle changes in the market.