We love the flipping reality tv shows. Shows like “Flip That House”, “Flip This House”, “Property Ladder”, and a dozen other television shows have been popular over the past several years. However, is flipping really better than a long term “buy and hold” strategy?
Here are five reasons why buying homes for the long-term is more beneficial than flipping:
Residual Income: When you “buy and hold”, you create monthly income versus a one-time payment. When you stop “flipping”, the income stops. When you stop acquiring homes to “buy and hold”, the income on the properties you already own continue to come in. True wealth is only found when your money is earning you money, rather than your labor earning you money.
Tax Benefits: House “flippers” pay a much higher tax rate than long-term investors.
Agendas: A house flipper is subject to numerous outside agendas that affect if and how success is found. Hard-money-lenders, private investors, future buyers, partners, and others all have an agenda and their best interest at heart. When you buy-and-hold, the main agenda is your own.
Whims of the Market: When flipping a home, you are hoping that you can sell the home quickly, which is largely based on how the market is functioning in your town. Are there far too many homes being sold, causing yours to sit for months or years? When you hold a property long term you are not dependent on the whims of the market. You are able to sell only when it is advantageous to sell.
Risk: When you flip a home, you have monthly carrying costs such as the loan payment, taxes, insurance that will add up each and every month until the home is sold. Additionally, there is the chance that there will be unforeseen costs that arise when repairs are being performed. Both these items can blow the budget and eliminate any chance of making a profit. When you buy a home for the long term (and manage effectively), you can balance out your risks over a long period of time, lowering the chance of losing money and maximizing your probability of building serious wealth.
Well I do want to emphasize that flipping a home is not always bad. Often times flipping a home, when done properly, can add a sizable amount of cash to your wallet – which can be added back into future buy-and-hold investments. As the phrase goes, “it takes money to make money”.
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