Buy and sell and buy and hold are the two commonly used real estate investing strategy. When it comes to choosing between the two, you have to consider the method that will help achieve your financial goals. In this article, we will tackle these two methods in detail.
Buy and sell real estate
A perfect example of buy and sell is fix and flip. It is extremely popular today. In fact, a lot of TV shows highlight fix and flip and it is endorsed by famous celebrities. If you are looking for a quick profit, then this strategy is perfect for you. How does it work? You have to look for properties that are undervalued but are situated in a growing neighborhood. The best properties are the ones that don’t require that much repair. They can be sold right after the renovation. With a fix and flip strategy, there is a lot of work to be done. To speed up the process, an investor works with other people such as real estate agents, builders, contractors, and so on.
Areas to focus on when using buy and sell method
1. Budget – To execute the renovation task properly, you need to have a large sum of cash. If you don’t have enough money, don’t worry as there are other ways to fund your flipping project. You can partner with other investors or borrow money from moneylenders. However, hard money lenders and portfolio lenders offer a high-interest rate. If you want to maximize your profit and execute the flip the soonest time possible, you need to have available cash at hand.
2. Repair – The renovation process can take up a huge chunk of your budget. Hence, it is important to find an undervalued property that requires less work. You should focus on the key areas of the property such as the kitchen and bathroom. Stay away from properties with structural damage as they can be very costly to repair. Focus on properties that only require cosmetic updates such as flooring upgrade, new paint, replacing the carpet, and so on. These things are not that costly but can surely add value to the home. Through these improvements, you will be able to sell the proper at a higher price.
3. Risk – There is no such thing as a risk-free investment. To minimize the risk, you need to carefully choose a property, weigh the risk and reward, and have an effective exit strategy. If you don’t have enough money to handle the renovation cost, then you can always borrow. However, you need to make sure that you choose the right funding method.
Buy and hold real estate
This strategy does not only work for stock market investing but also for the real estate. With this strategy, you can make money through cash flow and appreciation. Investors choose a property in a stable neighborhood. There are factors that need to be considered when selecting a property for buy and hold. These are:
• Growth potential
• Employment statistics
• Average rental price
• Median income
• Proximity to schools, hospitals, malls, market, and church
• Crime rate
How does buy and hold real estate strategy works?
Once you found an ideal property, the next step is to choose the best funding strategy. If you have enough cash, the funding won’t be a problem. However, if you have a limited budget, you need to come up with the best possible way to fund your investment. What most people do is they use other people’s money. You apply for a loan with 20% to 30% down payment. Depending on your investment goal, you can set up the term, which is usually 15 to 30 year-loan. If you invest in the right neighborhood and you have the best tenant, you don’t have to personally pay the loan and other related expenses because they are paid for by the cash flow generated through the rent.
What are other relevant expenses? The truth is you can rarely find a flawless property. Most of them require some sort of renovations. However, with the buy and hold real estate method, the renovation job is minor and focused on enhancing the appeal of the home to renters. The renovation task is done as quickly as possible so that tenants can come in and the property starts generating cash flow.
How to generate profit through the buy and hold real estate strategy?
1. Monthly rental, which helps cover the expenses and mortgage
2. Appreciation
What to keep in mind when using buy and hold real estate method?
• Invest in the right neighborhood. Do a thorough research of the neighborhood and work with the best team.
• Choose a strategy that helps meet your investment goals. There are many real estate investing strategies out there, but when it comes to making your choice, you need to consider your financial goals.
Buy and sell and buy and hold real estate strategies do have their pros and cons. Buy and sell or also known as fix and flip is perfect for people who like to take on bigger risk in exchange for quick profit. On the other hand, buy and hold is perfect for investors who like to take a lower risk and stable gain.
