Both real estate flippers and long-term property investors can generate massive profits.
The choice between flipping properties and long-term investing depends on an investor’s particular financial situation and investment goals, so many real estate investors choose to actively pursue just one of these methods of real estate investing.
Here are 3 things to consider when deciding to be a flipper or long-term real estate investor.
#1 Short-Term or Long-Term Capital Allocation
Real estate investors allocate capital to the purchase, rehab, maintenance, and sales of real estate to generate as much profit as possible.
Capital allocation is perhaps the first business decision an investor makes when deciding whether to flip properties in the short term, or hold them to build wealth in the long term.
An investor with a short-term capital allocation should only invest in real estate for the short term, with property flipping being the best option. But an investor with a long-term capital allocation has more options, and can choose to generate profits both in the short and long terms.
#2 Short-Term Profits, or Long-Term Wealth
Flipping real estate can be very profitable, especially for professionals who are experts at buying, selling, and rehabbing properties. But just as with most quick-profit investments, tax and cost issues can be higher with flipping properties as opposed to long-term investments. Flipping properties, therefore, should be considered more of a tactical strategy than a long-term investment strategy, much like short-term stock trading.
Long-term real estate investing typically generates higher profits, evidenced by the fact that much of the world’s old money wealth was generated through long-term real estate investments. Today, investors can generate a healthy cash flow from investment properties while averaging a 10% – 15% annual net cap rate, then generate a very healthy profit when selling the properties.
#3 Short-Term Commitment, or Long-Term Commitment
Flipping real estate requires a short-term commitment to the project, while long-term property investments require a long-term commitment.
There is something to be said for getting your profit out of a deal in 30 to 60 days, as opposed to several years. Some real estate investors are not interested in managing properties over the long-term, and want to quickly make a profit and move to the next flip. For these investors, making a lower profit more quickly, without the burden on managing a property for years, is appealing.
Other real estate investors prefer to deal with fewer properties, which they hold for a long period of time to steadily build wealth. These investors, of necessity, must put a property management component into place, in addition to the buying, selling, and rehabbing of properties. Though there are risks inherent in long-term real estate investing, investors who manage them well are handsomely rewarded.
Both short-term real estate flippers and long-term property investors can make generous profits. But because of the different business structures and finances required to produce profits with these two types of real estate investments, investors often decide to either flip properties or invest for the long term.
If you choose to flip properties, you can have a lucrative career in real estate. But if your goal is to build wealth that could last for generations to come, long-term real estate investing is the option that’s right for you.