Long Term Strategy v. Short Term Investment
What type of home buying strategy best suits you? Is your personality more suited to flipping homes, short term investment—this means you plan to resell within a few years—or buying and holding long term?
If you have never even thought about your buying style, it’s important since the purchase of a home is likely one of the biggest investments you’ll make over your life time. Mortgage News Daily asked a similar question in a recent article, Longer Term Investors Outnumber Flippers 2 to 1 in California. The piece reveals the most common types of investors in California, based on a survey. The results support the notion that certain styles are more appealing to people based on their own personal comfort zones.
Here is an excerpt:
The California Association of Realtors® (C.A.R.) looked at the current modus operandi of investors through a survey conducted in April. It was conducted among investors who had worked with a Realtor. It found that64 percent of investors have a long-term strategy in investing, indicating they planned to keep their property formore than a year although three-quarters intend to resell within six years. About 36 percent of investors intend toflip the property.
Flipping, Buy-and-Hold, Short Term…
If you are a first time buyer, knowing your personality as it relates to risk is essential. For example, if you are a safe, low risk type of individual, a long term buy-and-hold strategy might be the best for you. While you may deal with market dips and spikes over time, applying this style means that you have the space to decide when the market is primed to sell. Conversely, if you are a high risk, high reward type, ‘flipping’ a home as a form of investment may be the right move. Or even perhaps short term investing—that is staying in the home for only a few years.
What is flipping exactly? Flipping is when a buyer purchasesreal estate at a discounted price, renovates it in some way, and then sells it for financial gain. To make the biggest profit, this is preferably done within a very short period of time. Flipping is not necessarily risky in terms of market fluctuation because in the very short term, rates don’t change all that much. However there are transactional costs and sometimes repairs and investments that need to be recouped in the sale ultimately, that can affect your profit. But, if you are accustomed to taking risks, then you probably won’t crumble if the profit isn’t great or you only break even. Nothing ventured, nothing gained as the saying goes.
‘The Biggest Factor is: You’
For the seasoned buyer, before you say pishaw to the getting-to-know-you theory, been there done that, consider this: your current strategy may not suit you anymore. You may be operating under an old modus operandi. Ask yourself this question: every time you buy a new “dream” home, do you end up hating it within months? Maybe the home isn’t the issue, but instead, your strategy is simply outdated. It no longer suits you.
Says author and real estate investor Michael LaCava in his article on Bigger Pockets,flipping and long term investing are the most popular buying styles, but which one is better for you comes down to your personality. He says:
The biggest factor of all is: you…your personality, your tolerance for risk, your financial goals and your personal financial situation…Do I necessarily think [house flipping] is the superior way to invest in real estate? Not necessarily. Still solid and always a good investment, long-term buy-and-hold real estate investing is been around for years and has created untold millions, if not billions in dollars in wealth to its participants.
Consult with a Realtor
As an experienced real estate agent in Westlake Village, I not only work to help my clients buy and sell homes, but I become friends with many of them. I like to get to know who I am working with. Because of this I am keen to the hurdles that can arise in the buying process. If you are considering buying a home and aren’t exactly sure what type of investment strategy is right for you, contactWestlake Village Real Estate for a consultation and we’ll decide the right way to proceed together.