Real estate industry is vast and quite diverse with the kinds of investments and the areas in which you can invest in. Types of property ranging from investment into lone standing plot properties to fully furbished houses are available to investors. Similarly; apartments and flats as well as commercial and residential rentals are also up on the market.
The diversity of the market does not halt there; as there is a vast variety of investment strategies that investors will adopt to assure their success in real estate dealing. In the real estate industry it is quite common that one could get overwhelmed by the different kinds of investments and their management. That is why it is a good measure for investors to stick to a type of investment strategy that can work for them in the long run.
Most successful investors are known to branch out from their area of investment however they always have a niche or specialty in their investments through which they got successful in the first place. Today we will take two contrasting investment strategies of flipping properties and put them up against buy and hold strategy in the real estate market.
What is flipping property? This is when an investor buys a property and resells it in a short period of time for a profitable return as short as within the span of 6 months. Flipping property takes out the hassle on long term observation and market situations affecting the property value and look to buy low and sell high.
Buy and Hold:
The crux of real estate business revolves around buying low and selling high. Investors that adopt buy and hold strategy will usually buy out a property usually in an underdeveloped area and hold onto it for a few years. Since real estate is very prone to appreciation via surrounding development; buy and hold investors are looking at the long term investment. Renting is another popular form of buy and hold where the owner transforms or runs the property under them as a rental unit other than aiming to sell it off.
Flipping property provides active income whereas buy and hold properties provide passive income:
Active income refers to the money that you earn while actively putting work into a project. In case you are flipping properties or have a salary based job that will provide you active income. On the other hand passive income is the money earned without putting in material work from your end. This is the case you have investing into stocks or bonds or are overlooking rental properties in real estate.
Property flipping allows a person to take advantage of their vigilance and skill of negotiation to quickly sell properties they have bought and earn directly. Investors who are buying and holding onto properties and putting them up for rent can earn passive income.
For people who are flipping houses with an active job on the side; be aware that the rest of your time is directly going to be taken up by your work in the real estate business. Although the passive income earned through rental properties for buy and hold style investors does require care and management for properties… it is a lot less tiring than that required in flipping houses.
Dependence on market situation:
People that choose the strategy of flipping properties are keeping safe from the risk of market situation shifting. As the property is bought and sold relatively quick… the chances that investment can result into a loss due to market values of property that can depreciate over time are much lower. Since real estate values do not fluctuate over the matter of mere days like stock market; flipping houses is a relatively safer investment.
On the other hand people who are buying property to hold onto it for a while are a lot more susceptible to the market values of property over time. The initial goal of every buy and hold investor is to invest where property appreciates but over the span of a few years and surrounding development and new projects that might be more attractive in the future; the once appreciating value of a property can drop significantly. One has to take extreme caution and care for investing into buying and holding on to a property and consider all external factors of the market that might influence its value in an unfavorable way.
Returns on Investment:
Flipping property is a method of investment that exhibits fast returns on a person’s investment. As stated above; property flipping investors sell their property within the span of 6 months of investment for a profitable deal; making the returns on an investment much quicker. On the contrast, buy and hold property investors are looking down a line of years to determine the returns of their investment. In case they are turning invested property into a rental; the situation will best be able to provide them with monthly (or however so is signed in the lease) of rent money.
This once again makes it depend upon an individual investor’s preference; whether they want quick returns or whether they have the resources to aim for a future benefit.
Relative appreciation in property values:
For persons who are going to sell their properties in a short period of time carefully pre calculate the appreciation of property within this span. However this cannot compare of a period of over years of property appreciation. Surely; within a few months a newer development might become more popular and property flipping might be benefitial in such cases; however appreciation over the span of years can yield amazing results for any investor.
Buy and hold investors take the time and energy to manage their properties they are holding on for to appreciate them in value to sell for comparatively much better returns than what property flipping can acquire.
For buy and hold properties appreciation can come in many different shapes and forms. Firstly the most important aspect of value appreciation can be contributed to surrounding development on a property. Now consider a lone standing plot on an obscure construction site which is being developed by some renowned housing projects. A person following buy and hold strategy approach will buy out this land at a much lower cost (same can be for areas that have been built but are underdeveloped).as the development will finish up in the upcoming years and more and more people recognize this new area as a great destination for community living; the plot that was once quite cheap would gain a lot more value and significance from other investors. This is where they can sell it off for great returns on investments.
Similar is the case for rental properties; the development on the surrounding area can further appreciate value of the property. This can allow you to ethically raise the rent that you are achieving as well as get better offers on leases from potential tenants.
Although flipping houses are a more stable way of real estate investment; rental properties provide a better and more stable income in the form of rent. All of the rental property investors are buying and holding. Flipping property’s income depends solely on the deals that you are making and requires active work and expertise in the field; whereas from buy and hold properties in case you turn them into rentals can provide a steady paced income without need of tedious and active work.
Management of property:
Flipping houses require little to no addition work in the terms of management as a property is being invested to quickly resell. On the other hand buy and old properties can take a great deal of management to run. Especially in case of rental properties; to please your tenants and keep up with the market demand you will find yourself to be a manager for the property as well. This can take up addition costs that have to be accounted for. Similarly investors of buy and hold properties have to keep up with property laws on their long term investment. In some cases such laws and legislations can limit the potential of a property or can be a factor in their depreciation.
Either you are looking to flip properties or buy and hold onto them; areas of relatively new investment from trusted developers such as Bahria town phase 8 Islamabad are an excellent hotspot to check out. Being equipped with all the upscale amenities to facilitate luxury living; Bahria town phase 8 Islamabad is a dream location for many to settle into. You can acquire great deals for flipping property or tenants or buy and hold properties in Bahria town phase 8 Islamabad’s ideal development that has set a new standard for community living.
The answer to the question that which one of these property investment strategies is better is undecided… mostly because it depends on individual situation. Some investors are not able to afford holding onto real estate and make long term commitments so flipping property is best for them; whereas individuals who are confident with their calculations on a property’s future and have time to invest in long term investment are able to benefit better from buy and hold strategy.