Of all the possible avenues for involvement in the real estate investing arena, house flipping and longer-term investing are the most popular and common. In recent years, fixing and flipping houses has become hugely popular owing in large part to the influence of TV shows like Flip This House. Still, the tried-and-true (and steady) method of buy-and-hold real estate investing still has many benefits. But how do you determine whether to fix and flip or buy and hold?
First, there are several sound reasons to invest in real estate:
- The returns are more predictable than those for stocks/bonds.
- It provides a hedge against inflation.
- The resulting equity allows for financing other investment opportunities.
- It provides a safe place for capital to reside when other investment avenues are unstable or uncertain
So now let’s look at few of the differences between the two real estate-investing methods in Los Angeles.
The Time Factor
Without a doubt, the best thing about flipping houses is the fact that you don’t have to keep an investor’s/lender’s capital tied up for long periods. You can realize a return on investment in a fairly short period of time – because the goal is to rehab the house and sell it as soon as possible. When conditions are right, you can realize a profit of, say, $30,000 after just a few months.
With the buy-and-hold method, on the other hand, it takes far longer for you to see any significant return on investment, often years. Investors in this arena more often count on market appreciation rather than capital appreciation. With few exceptions, real estate values increase over the long haul. So the longer you hold a property, the greater the likelihood of appreciation and, ultimately, profit.
The Risk Factor
When it comes to deciding whether to fix and flip or buy and hold, risk is very often the deciding factor for many people. Still, ventures with the greatest risk often generate the greatest profit.
A little research on a website like Zillow will allow a real estate investor to predict fairly accurately the short-term direction of the real estate market in Los Angeles. So, in that respect, the fix-and-flip approach carries little risk. But – and this is a big “but” – most houses bought for the purpose fixing and flipping are distressed properties. And that means if you don’t have practice and know what you’re doing, you could easily get in over your head. And then rehab expenses could easily outstrip any potential profits.
Buy-and-hold properties will be vulnerable to market fluctuations, though. And if for whatever reason you are forced to sell when the market is down, you stand to lose money. But because markets trend upward over longer periods, many fortunes have been made by this method. Also, buying and holding and then renting affords a steady, predictable stream of income with less risk and volatility than having everything hanging on the sale of a property, as is the case with flipping.
The Hassle Factor
But maybe you just want to go the most hassle-free, headache-less route. Both methods have their pros and cons here.
With fixing and flipping, you’ll never have to deal with renters, which can be an enormous hassle and headache. But you’ll also have to wade through many more transactions and will have to pay the attendant transactional costs.
Buying and holding most often entails dealing with renters, along with all the inevitable legal and management issues. And this means you will have the hassle of finding and keeping good tenants. Still, this method will provide you a reliable income without the stress of having to flip a house within a certain amount of time.
Hopefully, if you’re trying to decide whether to fix and flip or buy and hold in Los Angeles, the differences we’ve delineated above will help you make the best investment decision.