Flipping Real Estate versus Holding Real Estate

Should I flip or should I hold? That is the question many investors continue to contemplate when trying to start out investing in real estate. It is so prevalent in my discussions with investors that I felt it important to come right out and say it, WHY NOT DO BOTH? There are definitely pros and cons to both flipping and holding rental property but really when investing in either you are doing many of the same activities. In a flip or buy and hold investment you have to find a deal that is profitable, raise the capital for the property, renovate the property and then either sell for a profit or hold for cash flow. Of course there are a million different real estate strategies to deploy and there is no one size fits all, however the end goal is still the same for a flipper or a buy and hold investor, PASSIVE CASH FLOW.

If you are a flipper you are trying to obtain large chunks of cash that you can invest in more flips or into cash flow streams. Once you have enough cash, most people invest it for cash flow so they can retire. People start out flipping because they think they need this cash in order to hold real estate.

If you are a buy and holder, you are going directly for the cash flow. The goal is to slowly develop enough cash flow to cover all of your expenses and then some, to re-invest and help cover inflation. Most people think they cannot do this strategy unless you have cash to put down as a down payment. NOTHING COULD BE FURTHER FROM THE TRUTH. If you do not have your own capital you can use joint venture partners, raise capital through syndications or use private lenders for the funding sources, instead of your own money. You can develop a cash flow stream using OPM (other peoples money) as long as you provide enough value and deal know how to help your investors hit the return on investment and protection they are looking for.

Really though, flipping and/or holding property is a personal preference. I personally believe a combination of both is important for a healthy real estate portfolio. Here are some of the differences between the two that might effect your decision if you want to focus of flipping and/or holding.

• Flipping provides short-term cash while holding typically provides residual monthly cash flow.
• Flipping is not tax advantageous while holding provides depreciation benefits.
• Both can provide a high return on investment
• Flipping can be time intensive during construction while holding can take time monthly to manage the property managers and review your investment
• Flipping has high carrying costs while holding is typically positive cash flow after all costs
• Holding comes with tenant issues while flipping can come with contractor issues.
• Holding provides an inflation hedge while flipping is less susceptible to market fluctuations due to its short term nature.
• You can flip or hold many different asset types, from single-family homes and multifamily buildings to commercial property and notes. There are many options available.

There are pros and cons to both investment types so it is important to come up with an investment strategy that works for you and focus on it. Some flip income coupled with lots of cash flow is never a bad way to go.

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