If you want to become a property investor, the first thing you need to do is decide which property investment strategy is right for you: buy and hold or buy and flip?
Both strategies can be profitable but only one will be suited to your skillset, financial circumstances and your goals. Here’s what you need to know to make sure you choose the right option.
Buy and hold: Pros and cons
Buying and holding an investment property is the simplest way to invest, and is one of the easiest means as a property investment strategy. It involves purchasing a property, renting it out and holding it over a long period of time (usually over a decade or longer) to enjoy capital gains as property values increase and gradual equity increases as rental income pays off your mortgage.
Generally, when using the buy and hold strategy, you won’t spend much on renovations or maintenance and will focus on achieving a high rental yield. To succeed using this strategy, you’ll need to invest in a property in good condition that is likely to increase in value. You’ll also need to be able to afford to hold the property for an extended period of time.
Pros
- Accessible to everyday Kiwis. No renovation skills required.
- Low risk if you buy the right property in the right area.
- Less time and specialist skill required.
Cons
- It may take longer to see financial benefits and build equity.
- May not be as effective if the market is not performing well.
Buy and flip: Pros and cons
Buying and flipping a property is a more active and involved way as a property investment strategy. It involves purchasing a property, renovating or improving it, then either selling it immediately for a profit or holding it to sell later.
The main difference in buying and holding is that you’ll have to find a property that needs improving, then improve it in a way that increases its value. That means you’ll need to have a good eye to find the right property that you can add value to, and be able to fund and plan renovations or alterations to improve it. To make this strategy work, you’ll need to have the time, skills and inclination to be actively involved with your investment. Having experience in construction or interior design is a massive advantage for investors considering this strategy.
Using this strategy, there is more potential for quick capital gains and greater financial benefit. On the flip side there is also a higher chance of losing money because you’re investing your own money into renovations/improvements.
Pros
- Chance of quick equity increase / fast financial gain.
- Can be a full-time job if you want it to be.
Cons
- Higher risk – more chance of losing money.
- May require a larger investment than buying and holding.
- More time-consuming.
Which strategy is right for you: Buy & hold or buy & flip?
At the end of the day, neither strategy is better than the other. The question is – which is suited to your skills and financial situation, and which will help you achieve your goals?
If you’re looking for a way to passively increase your wealth over a long period of time, that’s lower risk and requires less of your time, buy and hold may be the better choice.
If you’re looking for a more active investment option with a higher chance of quick returns then buy and flip could work for you. With that said, this option can be risky so before you take the plunge, you should be certain that you have the skills and the expert knowledge necessary to make it work. Check out the best places for property investment in 2021.
Not sure which option’s right for you? Money Empire offers a full financial advisory service free of charge to help you make the right decision. We’ll take a close look at your financials and get to know you, advise which strategy is best suited to you, then help with everything from property selection to securing a mortgage and insurance.
Give us a call today to make sure your next investment grows your wealth instead of costing you money.
