Real estate is considered one of the most stable investment vehicles, but which strategy should you tackle for your investment? Auction.com takes a look at what investment strategy is the best for whatever your endgame would be.
Advantages to real estate investment compared to other investment strategies include appreciating property values, easy access to credit with a property as collateral, equity buildup, and deferred profits. There are two main strategies to real estate investment, Auction.com notes: buy and hold, and fix and flip.
The buy and hold strategy is more long-term. Benefits include business expense deductions for most maintenance costs and other operational expenses. Additionally, real estate is something that can be left to heirs or deeded to a good cause to create a lasting legacy However, with buy and hold, an investor must be able and willing to serve as landlord and keep the property maintained.
For fix and flippers, initial home costs are typically much lower, but renovation costs can be high. However, returns are fast, as profits will be realized as soon as the property is sold, which may be within a year from purchase for some properties.
“Opting for a long-term or short-term strategy in building your investment portfolio is a personal decision,” Auction.com notes. “You should consider your investment goals, capital availability, your risk tolerance level and flexibility as it applies to your exit strategy.”
It is important to consider a variety of factors out of investor control, including the fact that real estate assets are not liquid, and are subject to the local demand and supply situation as well as the availability of similar properties in the same price range. However, short-term investors can take advantage of buying opportunities when prices trend downward and selling opportunities when prices are trending up.