The residential real estate investing industry is the most popular it’s been in over a decade, causing many people to take their shot at investor success!
For new real estate investors, one of the hardest choices to make is whether to fix and flip or fix and hold (also known as buy and hold or fix and rent).
What’s The Difference Between Fix And Flip And Buy And Hold?
The traditional fix and flip entails buying a property (hopefully at a discount), completing some scope of renovations, and quickly reselling the property. With investments like these, there is less hold time with no long term headaches or responsibilities, and an opportunity to make a lot of cash quickly.
With buy and hold properties, you are purchasing a property, completing necessary renovations, and managing the property as an asset collecting rental income. The goal here is to make sure your monthly costs are less than your collected rents, resulting in positive cash flow.
Unlike a fix and flip where the property is bought and sold quickly for a profit, buy and hold investments produce cash flow at a slower rate, but can be extremely profitable in the long run. However, if the property isn’t managed well, pitfalls like maintenance or tenant issues can end up eating away at profitability.
Flipping As A Business Vs Holding As An Investment
Flipping properties is fun (especially when it is going well), but it is also a business. Keep in mind, like any business, if you stop operations (or flipping in this case), your income stops as well. With proper planning and execution, investors can build a lucrative business with fix and flips. A fix and flip property is a great option for individuals looking for financial gain in a brief timeline, rather than having their capital tied up for extensive periods. There is also no headache of having to deal with tenants. With a flip, once your property sells, you’re free and clear and on to the next deal.
Buy and hold properties are an investment that can be a “cash-cow” for investors, continuing to produce income every year, however, there are inherent disadvantages. Finding the right tenant may be a difficult feat, especially depending on the location of your property. Certain properties may attract difficult tenants based on the surrounding neighborhood. In situations such as this, it may be hard for you to collect your rent on a timely basis, if at all. Be sure to take the time to find good tenants who will take care of your property!
Using Hard Money To Finance your Investment
To be successful, you must be able to pick the right property for your personal investing goals. Single family residential homes are usually an attractive option for a fix and flip investment whereas multi-family residential properties or mixed use properties are more desirable for rental income.
Hard money loans are known for providing quick and flexible financing, an important factor for any real estate investor. A hard money loan is a great option for the fix and flip investor, and can even assist a buy and hold investor with financing the purchase and rehab costs. The only difference is that instead of flipping the property and paying off the loan, a buy and hold investor’s exit strategy is to refinance into long term financing.
Regardless of which route you choose as an investor, your ultimate goal is to add value to your property. If your project is planned and managed well, you should be able to flip your property quickly. At ABL, our average pay off time is 9 months, and with no pre-payment penalty, you are sure to turn that ugly house into a profitable investment like this one!
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