Comparing the Quick House Flip vs. a Buy and Hold Property

 To flip a house or buy and hold; that is the question. And unfortunately, investors face various challenges when deciding which is better for them. There isn't a clear-cut answer. Instead, choosing one method over the other should be part of a well-structured investment plan tailor-made to meet individual investment desires.

Brad Ransome says that pursuing either strategy has advantages and disadvantages that work for some investors and not others. After all, no two investors are made equal.
 

 Flip for Active Income or Hold for Passive Income

The main distinction between flipping and holding is a quick return on investment, or holding out for a possible larger return, years later.

Passive income is earned through investments that make money without extra input from the investor. For example, through receiving rental income or stocks and bonds.

On the other hand, investors earn active income in exchange for work, such as house flipping. Even if they don't do the physical labor themselves, it's still considered active income.

This difference makes flipping much more than an investment — it's a business.

House Flipping 101

Investors can choose to focus on financially distressed properties or fixer-uppers. The latter involves further labor and money to increase its value, while the former earns profit through purchasing below the current market value.

Since finding flipping opportunities can be challenging, experts recommend investors consider it a tactical strategy rather than a long-term investment plan.

The Pros

Most investors invest in house flipping for its quick monetary gain. On average, it takes six months to flip a property. Although specialists urge new investors to take their time — it takes a while to build contacts within the industry.

On top of that, it's a rather safe investment compared to the stock market. Usually, any movement within the real estate world is easy to predict.

Therefore, flipping houses is deemed safer because capital is only at risk for a short while.

The Cons

Long-term investments don't come with the cost problems potentially associated with flipping properties. They demand cash influxes, and the ever-high transaction fees can eat away at profits.

Likewise, the swings in income can increase tax bills, forcing investors over the benchmark for certain brackets.

 
Long Term Buy and Hold

Unlike flipping, buying, and holding is a long-term strategy focusing on a passive, steady income.

The Pros

Owning rental units ensures regular income, regardless of where investors choose to spend their time. It's a recipe for amassing immense wealth, especially since land values always rebound eventually.

Plus, investors benefit from inflation when they decide to hold properties. Buying during a buyer's market and selling during a seller's market is the key to earning a fantastic ROI.

The Cons

The main issues faced with buying and holding are the management and legal problems that can come with long-term property ownership. First-timers tend to be ill-prepared to deal with the realities of being a landlord.

The Bottom Line

While one isn't necessarily better than the other, investors need to decide whether their capital allocation is a permanent investment or a way to get in-the-moment profit from the projected rise in home prices.

But generally speaking, buying and holding is usually preferred by those who wish to make real estate a key portion of their portfolios.