There are different ways to invest in real estate. Some people choose to buy homes in need of a few renovations and sell them as soon as possible for a profit. Others prefer to buy and hold properties, renting them out and waiting for the value to grow. Each approach is viable but which is right for you depends on what your goals are.
Buy and Flip
When you buy and flip, you are dealing in higher risk. The strategy is dependent on quick turnaround. There are deals to be found if you are willing to look for them but you have to also be willing to risk being stuck with the property. It helps if it is in a desirable location. Sometimes the property just needs to be updated. However, at other times, there may be issues that you won’t know about until you own it.
When you choose to buy and flip properties, you have to deal in volume with quick turnover. You have to feel confident that you can accurately predict the market and timing. If you are stuck holding one of these properties, you can see your profits go down every day that the property is vacant. While this strategy works for people who are willing to take risks, it can be “make it or break it” and you have to decide what is right for you.
Buy and Hold
The buy-and-hold strategy has proven to be lower risk. Over time, the value of the property will increase, which means that your equity will increase. You can use the new equity to buy other real estate investments. In addition, the money that you make in rent will grow over time and it can potentially replace your job down the line. This is a great long-term plan with financial stability attached.
Generally speaking, real estate is known to increase in value over time. When you buy with the mindset of holding, you will not be stuck trying to sell in the wrong market. The rental income will cover the costs and you can deduct your mortgage, taxes, and insurance from your taxes. Although there are some people who enjoy the intensity of the buy-and-flip strategy, buy and hold is more stable and builds more wealth over time.