Buy and Hold vs Rehab and Flip

These are the two most common forms of real estate investment strategies used in today's market.  In this week's blog I will break down some of the advantages/disadvantages to each as I see them.

Buy/Hold

• This strategy is a more long term investment strategy where you buy investment property, usually using financing and then have tenants pay rent which will pay the entire mortgage and if done correctly give you a positive cash flow coming in every month.
• Advantages-1)Generally considered a very stable investment that builds wealth over a      longer period time.  2) Use Other People's Money to build your real estate empire.  3) Can produce cash flow even in tougher economy when housing prices are falling you are not relying simply on appreciation.
• Disadvantages-1)Vacanies can wipe out your positive cash flow in a hurry if you are not careful.  2)Managing the property- This is not a desired skill set for all people, luckily you can find a property management company that will take care of this for you and still be able to have a positive cash flow.

Rehab/Flip

• A short term investment strategy where you buy generally distressed properties and then renovate them for an immediate profit.
• Advantages- 1) Can yield an immediate return on investment far exceeding the buy/hold strategy.  2) Don't have to be a landlord, you just get the property renovated and get it sold and move on to the next one.  3) Can be very personally fulfilling, of course you are making a profit on these homes when you sell them, but there is some personal satisfaction for taking a run down home in need of serious repair and making it sparkle again.
• Disadvantages- 1) Risky- If you have a problem selling your home the holding costs can very quickly eat into your potential profits.  2) Cash on Hand, although you can find Other People's Money to short term finance the renovations this money is generally a lot more expensive that traditional financing.   3) No cash flow you are 100% relying on the sale of the rehab to make any profit on this investment.

So there you have it, my breakdown of some basic real estate investment strategies used in today's market.  Which one is better????? I believe that if you could have a balance of the two you would be on very solid ground for many years to come as you build your financial empire. 

Until next time, Happy Hunting!!!