York Street PropertiesWhen most people think of making money through real estate investments, they usually think of purchasing property under market value, slapping on a new coat of paint, adding a picket fence and then selling it above market value as quickly as possible or simply put, the fix and flip. The primason why the fix and flip is so popular is hinged on being able to make a significant amount of profit in a short amount of time, with what seems like a reasonable amount of effort. And then I suppose, the excitement of having to flip a house quickly and for maximum profit has a lot of appeal. Anyone who's watched Jeff Lewis on Bravo TV's reality show Flipping Out would attest to this.
Now while some people manage to do very well using this strategy, things don't always work out as planned. The repairs could take too long or they could go over budget or the property just isn't sold quickly enough. Unfortunately there are those who got stuck with properties when the market turned. These fix and flippers were forced to either sell at a loss or suddenly turn them into a rental unit which, quite frankly, is a really bad way to acquire one. Flipping by it's nature is best done in a fairly stable and more or less predictable market situation. That said, I don't believe that the fix and flip strategy is the best strategy to employ at the moment. In fact, even the aforementioned Jeff Lewis is having a tough time. From an interview from Businessweek:
But as the cameras stopped shooting seven months ago, the housing market went from slowed to stalled, leaving the 38-year-old speculator, as he says, "paralyzed." Lewis has been mired for months in a dispute over the boundaries of a $2.5 million property. A deal to buy a house fell apart when Countrywide Financial (CFC) foreclosed on the seller. Until recently, Lewis lived in a 700-square-foot home, tight quarters for an entourage that includes two cats, three dogs, and, during working hours, a housekeeper and two assistants. "These are not great times, and people are suffering," says Lewis, a self-professed "working millionaire" who has flipped more than 40 homes.
On the other hand, employing a buy and hold strategy won't make you a profit of let's say $35,000 in a few months time. And it is definitely nowhere near as exciting as the adrenaline rush involved in flipping. But then again, perhaps that in itself is a good thing. Not everyone thrives on pressure after all.
That aside, the buy and hold strategy also has a lot of inherent advantages. The first being that finding, buying and holding the right kind of property automatically increases your equity. Getting it on a loan means that your principal balance goes down every month. It also provides you with significant tax deductions at the end of the year. More importantly, managed properly, your property is guaranteed to be a source of passive monthly cash flow, for years and years to come. Simply put, it may not make as much money upfront as flipping, but it is safer and more long term. The buy and hold strategy goes beyond merely making you a profit, it works to build wealth over time.
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