You know – there is no right answer to this question. It’s completely up to you as a real estate investor. It will depend primarily on what your real estate goals are and the market where you’re buying properties. Let’s explore the pros and cons of each.
Buy & Flip
The goal with house flipping is to buy low and sell high. The pro to this strategy is, if done successfully, you can turn a profit quickly and move on to the next deal. I think the biggest con to this strategy is, in most cases, it will be difficult to build real wealth. Good house flipping deals can be hard to find, and if you find those deals, chances are you’ll be competing with other investors who want those good deals too.
Realistically, how many houses could you flip in a year? Assuming you’re buying one house at a time, let’s think about the timeline. Let’s say it takes two months to find, negotiate, and close on a property. Then you take two months renovating it, and then it takes you three months to sell it. That’s seven months. So, two flips a year…likely. Unless you’re making a killing on the flips, you better have outside employment.
I think the only way to flip houses full-time is to 1) have your own crew, 2) be in position where you can be buying & renovating multiple properties at once, & 3) be in the right market. I don’t want to discourage you from flipping houses. I flip houses, but I think for most of us, flipping houses should be one of the avenues we make money in real estate, but not the only one.
Buy & Hold (Rent)
The main pro to this strategy is you can build real wealth. Think about it. If done right, you have monthly cash flow, tenants that pay your mortgages, you have an investment that is appreciating, and you have a number to tax benefits to boot. So, hold onto your properties, build a larger and larger portfolio, and when the day comes to retire, sell them all, and spend the rest of your days rubbing yourself with coconut oil. What’s the possible downside to this strategy? TENANTS.
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In a perfect world where tenants always pay their rent and don’t destroy your property and turn it into a crack house, a buy and hold strategy would be a no-brainer for anyone. The reality is tenants can make your life a nightmare.
The key to a successful buy and hold strategy is to screen your tenants well! Read that last sentence again. Take your time, and find good tenants even if it means your property has to sit there vacant for a few months. Trust me – better vacant than to end up with a deadbeat tenants.
The conclusion here is that you need to carefully consider which strategy is best for you. At this point, here are two blog posts I suggest you read next: