Buy & Hold vs Buy & Flip
Property investment is a huge undertaking—it needs you to have a game plan for it to succeed. Investors usually have these two strategies: buy and hold, and buy and flip. Which one should you do? Read on to find out what’s right for you:
What is the Buy and Flip Strategy?
Buy and Flip involves an investor buying a property under market value and then reselling it within a short period of time. Investors usually follow the 70% rule—properties must be bought for 70% of their actual value after renovations.
For example, if a property is worth $200,000 if it’s in good condition but needs $30,000 worth of renovations, an investor will buy it for $110,000. Following the formula: [Home Price x 70% - Worth of Renovations].
Pros of the Buy and Flip Strategy:
Fast-paced. This strategy requires less time, and you can realise gains quickly and gain money for your next investment.
Less risk. Flipping keeps your capital at risk in the shortest time possible.
Less hassle. Flipping requires less time because it doesn’t involve rental contracts. You don’t need to worry about leasing and management.
Cons of the Buy and Flip Strategy:
Unexpected hold-ups. They might come from delayed contractors, renovation obstacles, delayed materials, which could lead the investor to lose more money.
Lose money because of holding costs and taxes. Your capital can be completely absorbed by taxes if the property has a delayed renovation or sale. Insurance, mortgage, and maintenance costs can also blow a big chunk of your budget.
Miscalculation. Since properties in this strategy can come without a seller’s declaration, it might cause the investor to overlook major issues and miscalculate renovation costs.
More pressure. Flipping a property involves more stress than holding on to a property—you need to coordinate contractors and deal with renovation and sales delays.
What is the Buy and Hold Strategy?
This strategy involves buying a property and considering it as a long-term investment. The investor creates wealth by earning equity in this way and waits for property prices to appreciate before selling.
Pros of Buy and Hold Strategy:
Less stress. This strategy holds less stress because you won’t need to coordinate renovations constantly and expenses and returns are amortised over the years instead of months.
Less risk. Long-term growth is easier to predict than short-term growth, making holding a property less risky.
Better for taxes. Property held for more than a year is eligible for a long-term rate for capital gain taxes.
Cons of the Buy and Hold Strategy:
Hassle with management. Holding a property comes with many legal, managerial and logistical issues.
Vacancy rate fluctuation. Vacancy rates will change due to external factors, which is beyond an investor’s control.
Finding good tenants. Finding good tenants is a challenge in itself, especially those who will rent in the long-term.
Which strategy should you do?
This will depend on your investment goals and financial situation. To help you decide, here are some points you should take note of:
You can flip if you:
Need the capital with the next year
Are comfortable in high-risk investments
Have contacts within the real estate, construction, and financial lending industries.
You can hold if:
You don’t have enough capital to sell, renovate or buy a property.
Property prices are expected to go up in the near future.
You are not comfortable slipping into a higher tax bracket.
📸 Nikole Ramsay
At the end of the day, you’re still the one who will decide on what to do—just remember to research and take your situation into consideration. If you need help in flipping or holding property, you can always drop a message.