By Mike Baird
As you probably already know, I’ve been flipping houses for years, but I also have a lot of experience holding and renting properties, too. Some real estate investors decide at the beginning of their careers that they only want to do one or the other. Others choose to flip in one market and hold in another. Still others actually make the decision based on a property-by-property basis, which I think is actually the smartest way to do it (if you’re not going to strictly choose one business model over the other). So, if you’re thinking about flipping some of your properties and holding others, but you’re not sure how to decide which way to go on any particular property, follow these tips.
You Don’t Have a Lot of Leads – Hold
If you’re having trouble finding leads and flipping houses, you may want to bolster your business with some guaranteed income. In this case, while you’re working on building more leads, look for a property that you can either afford to purchase with your savings or get approved for a mortgage on. This way you won’t lose money on a high-interest loan, and you’ll be able to start bringing in monthly income on the property while you continue to build your house flipping business. Savvy real estate investors have been using the ROIs from their rental properties to fund new investments for as long as anyone can remember.
You Have a High-Interest Loan on the Property – Flip
On the other hand, whether or not you have a full lead funnel, if you have a high-interest loan on a property, you need to pay that loan off as soon as possible. Choosing to rent a property for a lower, steady income over the long term isn’t a bad idea in general, but if you have a loan with 14-16% interest, it could lose you a lot of money.
You Have a Relationship with a Great Property Management Firm – Hold
If you’re thinking of holding a house instead of flipping it, keep in mind that you don’t have time to be a landlord. Your time is better spent getting out there and finding and chasing down leads. The more you can focus on finding properties to flip or hold, the more money you can make, which means you don’t have time to answer calls in the middle of the afternoon (or the middle of the night) about your tenants’ clogged toilets. Real estate investors make the most profits off of the properties they hold by hiring reputable property management firms to take care of all of the landlord duties while they continue to focus on investing.
There Aren’t a Lot of Rentals in the Neighborhood – Flip
Take a look around the neighborhood when you’re purchasing a house to flip or hold. If the area is predominately made up of homeowners, you might have trouble getting tenants, or you might run into trouble with the HOA if they don’t want a lot of renters moving into the community. Look at the demand in the area, if it skews away from rentals, you don’t want to hold onto that house.
If you thoroughly research the property you’re interested in, as well as market trends in the area, you can almost always tell whether flipping or holding is a better idea. In my experience, flipping houses is more lucrative in the short term and gives you more freedom, as you look for new properties to increase your wealth. That said, being open to different opportunities is almost always the best plan for an investor. Savvy real estate investors who float between flipping and holding use these techniques to make the best profits on their properties.