The Buy and Hold methodology, as it is applicable to property, is and always has been the cause for making more millionaires than any other method. The main reason is really because it lets you develop equity through appreciation over a period of time. There are numerous short-term techniques like lease-options, wholesaling, and flipping that can create some cash, but in no way will it improve your long-term net worth.
Some investors focus on flipping — that is, turning properties over quickly, rather than keeping them long term. In most cases, holding property generates more long-term wealth for you than flipping. Therefore, you may consider flipping some properties and holding others. On the other hand, you may consider using the flipping strategy a while, and then begin holding rental properties later. The big question is, “When should you hold versus when should you flip?”
The Advantages of Flipping. The main advantage of flipping is that you get your cash out immediately rather than later. For many people, the certainty of getting a paycheck right away is highly appealing. Flipping takes the real estate market per se out of the equation. If you buy a property correctly, whether the market is rising or falling is almost irrelevant, except for how long it will take you to resell the property. (Of course, if you buy cheap in a soft market, you can afford to hold a property longer.)
Homeowners are facing an economic crunch from the housing crash, but investors often face even more severe repercussions. More than 1 in 3 foreclosures are of investment properties, and should the foreclosure epidemic worsen as forecast, that number is expected to rise as more investors walk away from mortgages.
During the real estate boom investors and speculators bought homes, fixed them up and many sold within months. But the real estate crash prevents them from doing just that. Living in a home intended to be an investment property has become the answer for some investors, while others select to rent the property. More than 240,000 homes sit vacant nationwide, according to the U.S. Census Bureau.
A key strategy of buying a home to flip has gone by the wayside as more and more real estate investors purchase properties for the long term. Just when and how long it will take to reap profits from their investments is an uncertainty with some economists saying that it could take more than 10 years for the market to become healthy enough to make a good profit.
In his book “The Millionaire Real Estate Investor”, Gary Keller, founder of Keller Williams Realty International, keeps a basic theme: “Buy real estate right, pay it down and pay it off.” The ultimate goal should be to own lots of real estate free and clear for maximum cash flow. That mantra is attracting millions of investors and wannabe investors back into the depressed housing market to invest.