If you’re considering making real estate investments in Bradenton your primary source of income, then you want the best strategy for success. Even if you only want to earn some extra cash on the side, it’s still essential to maximize the technique you choose for your Bradenton investments.
To know which investment strategy is the right one for you, you can begin by looking at the pros and cons of each one. Additionally, knowing your long-term goals and what you hope to gain will help you make the right choice, too. Let’s take a look at the two major investment strategies: buy and hold or fix-flip.
The Buy and Hold Real Estate Investment Strategy
This method is a tried-and-true staple of real estate investing, and is fairly straightforward on paper: investors purchase properties, rent them out, then sell them at a later date. Often, they don’t sell them until a much later time.
Investors who use this investment method will have a steady source of income since they will collect continuous rent from well-placed tenants. Later, when they sell the home, the effect of compounding appreciation due to inflation (and other factors) typically leads to a sizeable profit. When you choose this investment strategy, you almost always get back what you put into the property—and then some.
Although the buy-and-hold investment plan is considered one strategy, it consists of two phases: the short-term and long-term of the buy-and-hold strategy. Let’s break down how each one works to bring money to the investor.
The Upfront Benefits
In this scenario, investors purchase a piece of property specifically to rent it. Sometimes the property may already have a tenant in it—or in the case of multi-family units, there may be several streams of income already established from the property. In either situation, the investor collects money from the tenants, which delivers immediate income from the property.
This income stream is referred to as short-term because it is delivered shortly after purchasing the property. However, it's the "long game" that makes buy and hold such a lucrative choice when diversifying your portfolio through real estate.
Long-Term Buy and Hold
With the long-term phase of this strategy, investors may hold on to a property for several years before they decide to sell it—if they decide to sell at all. It's a well-known fact that those who have investment properties they own tend to have a higher net worth than their tenants.
How vast is the difference? Those who own just one property currently have a net worth 44 times greater than their peers without.
It's Hard to Go Wrong with Buy-and-Hold Investing
You can begin collecting money relatively soon after purchasing the property.
You can borrow against your current property—thus allowing you to invest in more projects.
You have a steady source of income at all times due to rentals.
The real estate market doesn’t fluctuate as dramatically as the stock market—providing you more predictable results. Someone will always need to rent a home!
You usually make a hefty profit later when you sell the property post-appreciation.
The only downside to the buy-and-hold strategy is that renting out properties does require property management skills that many investors don’t have.
As your portfolio grows, your appreciation isn't the only thing compounding: maintenance, repair, and inspection issues all increase exponentially. However, investors can easily remedy this problem by using expert property management to protect their Bradenton investment properties.
Fix and Flip Investment Strategy
The fix-flip method involves purchasing a property, fixing it up and flipping it for a profit. There are two avenues to be profitable with this strategy.
One method is to find a house that is inexpensive due to its need for repairs or major upgrades. The investor makes the necessary repairs or upgrades, then sells it for much more.
The second method involves finding a house that may not need a lot in the area of repairs, but the owners are in financial difficulties and can’t afford the mortgage any longer. Consequently, they need to get out of the house payment right away, which means they are willing to sell it for less than it’s worth. In this case, the investor doesn’t need to put any more money into it: they can sell it for a profit.
Are There Benefits to a Fix and Flip Strategy?
Some investors like finding a distressed house because they can see the potential in it: if the investor is handy at upgrading or repairing homes, then that makes things go smoother. Once the updates and repairs are complete, then they can bring in a fast profit—assuming it's a seller's market.
It’s an even sweeter deal when investors find a property that doesn't need repairs but is only being sold for less than market value due to financial hardships on the part of the owner. In this case, the investor can flip it for a profit if he or she is willing to wait for the right buyer.
There is a downside to the fix and flip method: this method doesn’t provide a steady flow of income. It takes more time to find homes with investor-friendly pricing. These "TLC homes" also require an extensive time sink before they reach viability. In other words, this type of strategy is only successful if there is a plentiful supply of homes being sold below market value.
When comparing the buy-and-hold method with the fix and flip method, they both have their pros and cons. However, for investors who want steady income to grow their long-term wealth, then the buy-and-hold method is the way to go. You begin accumulating income right away—and you still have the potential to “flip” the house later on in the future for much more than you paid for it. Ultimately, buy and hold will maximize your gains for the long haul.
If you need guidance for your investment property portfolio, turn to the property management experts in Bradenton: Real Property Management of Sarasota & Manatee. We know what it takes to develop a successful real estate investment portfolio because we've been helping investors like you grow for years. Get in touch with us to see what we can do to grow your long-term wealth!