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Real Estate Flipping Versus Holding - Buy and Hold for Cash Flow!

By Edited Nov 13, 2013 0 0

There are several reasons why I feel that buying and holding real estate for cash flow is much more desirable than flipping real estate for a short-term gain. When I refer to buying and holding real estate I am talking about an investment property such as a multi-family home. Buying and holding a property and milking it for cash flow and income is just a no-brainer in my opinion.

First, you should realize that the advantages of investing in real estate in general are great in the first place. Here are just a number of reasons you should invest, courtesy of Investopedia:

  • Real estate provides more predictable returns than stocks and bonds.
  • Real estate provides an inflation hedge because rental rates and investment cash flows usually rise by at least as much as the inflation rate.
  • Real estate provides an excellent place for capital in times when investors are unsure of prospects in the stock and bond markets or when investors expect long-term returns in stocks and bonds to be inadequate.
  • The equity created in a real estate investment provides an excellent base for financing other investment opportunities. Instead of borrowing to get the capital to go into other vehicles (i.e., buying stocks on margin), investors can borrow against their equity to finance other projects. The relative ease in borrowing against a real estate investment combined with the deductibility of the mortgage interest makes this option a less-expensive method for financing other opportunities for investors who are comfortable taking on the extra financial risk.
  • In addition to providing cash flow for owners during periods when residential real estate is being rented out, it can also be used as a residence or for some other purpose during periods when it is not producing cash flows. 

Why Flipping is Not a Great Idea

Flipping is risky. First, you need to know what you are doing. You need to be able to buy a house that is undervalued then perhaps fix it up and sell it for a profit. This is difficult and risky because of the current weakness in the market. Not many people are buying homes anymore, rather they are

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renting at affordable rates! This is also a positive for buying and holding a multi-family home or apartment building. Since more people are renting at affordable levels, there is demand for this type of housing. Therefore you have more tenants to choose from and less chance of a vacancy.

After the 2008 real estate bust, many people got hurt. In my opinion, the flippers were the ones who got really crushed, not those who bought and held their properties for income. That's because many people bought homes at the peak in 2007, thinking they could flip it for a gain. This was one of the reasons the bubble formed in the first place - the thought that prices would just keep on rising! Instead you should focus on being a REAL real estate investor by buying a property, renting it out, and reaping the benefits of cash flow. Don't go for the fast money by flipping unless you really are an expert at remodeling and don't mind the risks involved. Otherwise, I would recommend buying and holding for the long-term.

Can Rates Get Any Lower?

As I pointed out in a previous article, I believe that real estate is probably the best investment class there is for several reasons.

Right now I don't think things could be any better for someone looking to buy a home and rent it out or someone looking to get started investing in real estate. Rates are super low - under 4 percent nation-wide! You have to understand that with inflation around that level, this basically means you are getting free money. If inflation goes over 4 percent and you are locked in below that amount, you are doing pretty well!

Reasons Real Estate is the Best

Why else buy real estate? Not only is cash flow great, as it provides you with steady income, but I haven't even mentioned the equity buildup you will acquire on your property. Cash flow is the money you put in your pocket every month after all the expenses are paid for. It's the total rent, minus expens

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es, debt payments, etc. You want to find a property that is positive cash flowing, and it's fairly easy to do that today. Many investors are able to live off of the income that their properties produce just after a couple of years.

What's equity? Even if you are making out even, you'll still make money with Equity buildup - your tenants are paying your mortgage. It's that simple. After a couple of years you may wish to take some of that equity out for other real estate investments. Even if you just keep it there, you are building your net worth every year. 

As I said in my earlier real estate article, I recommend checking out the real estate websites Zillow, Trulia, and LoopNet. Also check out my article on key terms you need to know for investing in real estate. At those websites listed above you can browse at properties and have a little fun. I wish you the best of luck in investing in real estate properties for the long-term!



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