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Fix and Flip vs. Buy and Hold

By Keran Smith  |  Category: Blog

Fix and Flip vs. Buy and Hold

So you’ve found the property with the most potential and unlocked it through renovations, but what exit strategy is the best for your wallet? While re-selling a property upon completion of renovations will give you a lump sum of money upfront, holding a property as a rental can provide a steady cash flow over time. Let’s explore some benefits and costs of both.

Benefits: Fix and Flip

Upfront Lump Sum

Choosing to fix and flip the property not only releases the buyer from any tax, depreciation and mortgage burdens that are associated with holding onto it, but also gives the buyer an immediate return on their purchase in their bank account.

Freedom from Responsibilities

Immediately selling the property releases one from any responsibility of finding tenants and/or property managers, as well as coordinating the payments for insurance, mortgage, and upkeep costs of the property.

Benefits: Buy and Hold

Passive Income

Owning a rental property may yield smaller gains upfront, but provides an excellent source of passive income, which can be especially helpful for those in or close to retirement. Additionally, if a future spike in property value in the surrounding area is expected, the resulting increase in rent would increase passive income as time progresses, making this exit strategy a wise choice.

Tax Benefits

Let’s not forget about the tax benefits one receives from owning rental property – namely, there are several types of expenses that are tax deductible, such as mortgage, interest, repairs, cleaning costs, and utilities.

Costs: Fix and Flip

Holding Costs

Putting your fix and flip property back on the market upon completion of renovations can carry unwanted holding costs. The longer it takes for the house to sell, the more you will have to pay in taxes, insurance and utilities on the property that can eat into profits.

Opportunity Cost

When choosing the fix and flip exit strategy over renting out the property, you could be neglecting the opportunity to capitalize on a monthly passive income or long term market gains.

Costs: Buy and Hold

Finding the Right Tenants

Adding a property to your rental portfolio requires more of a time commitment than flipping it. Sometimes it can be difficult to find a good property manager and/or tenants that will not only pay their bills on time, but will take care of the property while living in it.

Financial Risk

Adding a property to your rental portfolio can yield higher than anticipated monthly expenses. Not only are you responsible for the mortgage, taxes, insurance and any upkeep costs, but if you are unable to fill the property with tenants you take the risk of high vacancy rates.

 

There are many factors that play a part in determining which exit strategy is best for the properties you renovate, but which exit strategy should you choose? Whether you’re trying to decide to add the property to your rental portfolio or put it back on the market, it’s important to determine the pros and cons of both options before you begin your next project.  

Are you ready to start your house flipping journey? Maybe you need help finding off market properties, or getting started flipping houses. Get in touch with a NetWorth specialist today and start building your wealth with real estate!