Fix&Flip or Rent&Hold? Pros and Cons for Each Strategy

Fix and flip is all the rage these days. Young couples, drinking buddies, new retirees, all are looking to make a quick buck by snatching up homes in need of repair, making the repairs, then putting the homes back on the market, all with the idea of turning a nice profit in just a few months. There are famous and not-so-famous TV shows airing almost constantly about the process. But when was the last time you saw a TV show about a couple buying a house, fixing it up and renting it out? Maybe never.

However, each of these strategies is a viable option for making money in the real estate market. Many factors can be involved in determining which might be the best strategy for you. Let’s take a look: Fix and flip or rent and hold? Pros and cons for each strategy.

First, We Look Inward

Naturally, the first place we need to consider is with ourselves. What kind of an investor are you? Do you love to take risks? Or are you more conservative? Are you looking to make a quick buck and move on? Or do you prefer a long-term view that will build a nest egg for your retirement?

Fix and flip is designed to give you a quick profit and opportunity to move onto the next venture, be that flipping another house or something completely different. Of course, fix and flip also runs a great risk if you run into higher rehab costs than you expected or hit a downturn in the housing market that cuts into your quick profit or worse, leaves you with a loss.

Rent and hold will not net you a quick return on investment, but it could lead to a long-term profit that’s even greater. First, you have the monthly income generated by the renters. Second, your house is building equity the longer you hold it. Historically, home prices have increased an average of 3 percent per year, so as you hold the property, your resale value is going higher.

The other side of the question about yourself is: Are you prepared to be a landlord? Do you have the patience and people skills to deal with finding the right renters and handling their needs over a long period? Always there are maintenance costs involved in renting a home, but since you’ve just completed a rehab, they should be pretty minor the first few years. You also can turn the home over to a property manager, but that eats into your profit.

Second, We Look Outward

The second factor that can go into your decision is knowing the community where you will be working. How hot is the housing market? Is it a community of buyers or renters? What is the income level? Will your potential buyers on a fix and flip be able to finance a home at the price where you need to sell?

Though the economy has improved, many people still are unable to qualify for a mortgage because of the tightened market. And many more families are coming off foreclosures and must rent out of necessity. Some parts of the country are recovering from the economic downturn more slowly than others. Even some couples are tired of the responsibility of home ownership and are happy and willing to pay extra to leave the maintenance in someone else’s hands. Or maybe you live in a college town where rents are just through the roof and allow you to make a handy profit while paying off the loan on an investment property.

That house is still sitting there – a great opportunity to snatch it up and make some profit. Now, it’s up to you to decide what strategy you want to employ to make that happen. Contact us when you are ready to make the move, and we can steer you into our fix/flip program for a short-term loan or into our rental program to get you into a longer-term loan at competitive rates.

Center Street communications are not intended to provide business, legal, tax, investment or insurance advice.  No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party.  You are solely responsible for determining whether any investment, investment strategy, business strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation.