There is a lot of compelling information out there about which investment strategy is better and why. Some say flipping real estate is quicker, no headache with tenants and bigger returns. Some say holding provides bigger returns over time, and has passive income and has major tax advantages. While both have pros and cons, I don’t think one is better than the other. There is a time and need for each and there is a time when every flipper should rethink their long-term goals and retirement plans to see if holding makes sense for them.
Cash returns are usually the most important thing for most investors. The real question is do you need cash now or later. Flipping is a great way to build investing power with big capital gains. You can still get big gains with the “Brrrr” style investing but you also get passive income. Sweat equity can be capitalized on with either strategy but only one is going to leave you with a cash flowing asset that will appreciate over time.
Another thing to consider is taxes. You can take a big toll on your profits with capital gains tax on a flip if you are not using a 1031 Exchange. Even then if you use it, you are on a time crunch to get that money reinvested. With a long-term hold, you will need to do a cash-out refinance after the property is rehabbed and rent ready, but you don’t have to worry about paying any capital gains until you sell the property down the road. So that means you have more money working for you now.
The major concern for a lot of people is tenants. Nobody wants to deal with that terrible tenant, evictions, phone calls in the middle of the night, ect. With flipping you never deal with that. I work with investors all day every day, and I have heard the horror stories. What I have come to learn though is with the right screening processing and tenant criteria you can really limit these types of problems. Don’t rush to get the property filled with the first tenant possible, vet them properly and get a good long-term qualified tenant and you won’t have to be worried about this at all.
In the end they are both good investment strategies. You need to ask yourself do you want to flip houses for the rest of your life or do you want your investments to continue working for you with minimal effort so you can start enjoying the fruits of your labor.