If you are already in the real estate business, then by now you have encountered the basic issues that first-time investors come across when starting out. You went through sourcing and acquiring the financing you needed to begin your initial investment, found the property or properties that you were interested in, and started down the path of becoming a long term real estate investor.
Now you’re probably asking yourself, “How can I scale and grow my business? How can I build even more wealth from my investments to secure a financially stable future for my retirement?”
Like anything else involving real estate, there is no silver-bullet answer to these questions. To build wealth in real estate relies on a variety of factors that vary, depending on the investor’s resources, property types in his or her portfolio, goals and investment strategy.
Among real estate investors there is a continuous debate over whether cash flow or equity is the better method for building wealth. Cash flow can come from the rent you charge tenants on a rental property you own or from the money you make on a fix-and-flip project. Equity is earned through the amount of money you have invested in the home you have bought. Both come with the benefits of possibly earning you money in the long run, but both also involve risks.
Cash flow isn’t always stable. When you own a rental property you have to rely on the tenants to pay you on time each month. If they are unable to pay or move out, then your monthly cash flow just vanished, and your reserves can deplete quickly.
Similarly, when fixing and flipping a home, once that property is sold, your investment in it is over. When it comes to equity investing in a buy-and-hold property, you have to rely on the property appreciating in value in order for your investment to grow over time.
So then what should you do when faced with both of these investment opportunities? A great strategy is to combine your fix-and-flip business with your buy-and-hold investments.
How is this possible? This can be done in one of two ways.
The first option is to take the steady stream of income produced from your buy-and-hold rentals and use this cash flow to finance your fix-and-flip business. Mike Lacava of BiggerPockets.com explains that “this is how you plan for the future—by creating a stable of assets that pay you each month while using the influxes of cash for running your flipping business.”
A second option is to build up your investing portfolio with the quick cash from your fix-and-flip properties and apply this money to a longer-term buy-and-hold rental investment. This gateway into buy-and-hold from fixing and flipping is a strategy that Andrew Syrios of BiggerPockets.com has dubbed as “flip-and-hold.” This is where you “use the profit from the first flip to live off of, and the profit from the second flip for the down payment on a property to hold.” By following this method, you can take advantage of the benefits that a fix-and-flip short-term cash generator can bring, coupled with the long-term advantage of a buy-and-hold property that’ll hopefully grow in value over the coming years, along with your wealth.
Building wealth in real estate will require a lot of hard work, dedication and desire to succeed in this competitive business. It all comes down to what path you choose to follow when making that commitment to investing. You have to weigh the pros and cons for both a fix-and-flip and buy-and hold-strategy to determine which one is the better option for building your real estate portfolio.
Long-term investments typically have a greater potential to appreciate, but that doesn’t mean short-term projects like fix-and-flips aren’t just as profitable. Fix-and-flips can allow you to get the cash you need more quickly by buying the right property at a lower or distressed value, fixing it up and selling it for a higher amount than your original purchase price, thereby earning you a profit.
About the Author
Erica Hackmyer is the content writer for LendingOne, a direct private real estate lender that offers short-term loans for non-owner-occupied residential properties, specifically regarding fix-and-flip, buy-and-hold and lines of credit to fund larger projects. With direct access to its own capital, exceptional customer service and a user-friendly online application, LendingOne has streamlined the overall lending process and made it faster and easier for investors to be approved and receive their financing in as little as 10 business days. For more information, visit www.lendingone.com or call 866-412-1574. You can also visit https://calendly.com/lendingone to set up an appointment to speak with a LendingOne loan specialist.