Fix & Flip vs. Long Term Rental – Which is Better?

Once you get involved in real estate investing eventually you have to make a decision as to whether you want to quick flip or hold a particular property you are thinking about buying.

Have you ever wondered which of these two investment strategies is better over time? I was in a unique position to accurately compare. Back in 2001-2003 I did twelve fix and flips then I went and did some other strategies. What if I had of kept those properties and rented them out? Would my financial position be any different now? You bet!!

First, some assumptions: I assumed that instead of selling the properties I kept them as rentals. I pretended that the properties were appraised for the amount I sold them for and that I received a loan for 75% of that amount. Rather than try to figure out what rents were over the years I just assumed that the buildings cash flowed neutral over that time (i.e. neither a positive nor negative monthly cash flow). Then, to get current property values, I went on the city’s website to get the tax appraisal value (not perfect but close enough).

I have an amortization spreadsheet that shows what the mortgage amount would be after all those monthly payments on each property over the years. As a final step I took the current appraised value and subtracted the current mortgage amount. The results were very surprising.

My net worth would be around $4 million more today than it is if I had of simply held on to those twelve properties and kept them maintained and rented. I could have kept those rentals, went and got a real job for the past 12 or 13 years, never bought another property in the mean time and still have $4m in equity.

There are some other variables that you could argue would have affected that (like the incredible, once in a lifetime, run up in values we saw around 2006) but, even if I am 50% off, that would still be $2 million to the good.

That is amazing and really speaks to a) the power of real estate investing in helping you achieve financial independence and b) the value of time (which we talked about a couple of weeks ago). We have also talked before about the benefits of the merged strategy where you buy a distressed property, fix it up but instead of selling it you refinance and keep it. This is truly the best of both worlds.

My own personal experience is that it is better to hold than sell if you can. Think about that next time you go for the quick money with a flip.

Read more about this in Comparing Real Estate Strategies.

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