To Hold or to Flip?

 

When it comes time to make the decision between holding or flipping a property, so many investors hit a wall. Like in most things in real estate, the answer is: it really depends on you. Let’s explore your options a little more in-depth.

If you’re someone who is earning income from a full-time job, you might be more inclined to do a buy-and-hold. In this case, you would buy a property and hold it for the long term because you consider that to be your nest egg, i.e. your retirement and future income.

However, starting your career with a flip near the very beginning can provide a significant injection of cash that will allow you to execute buy-and-holds later on.

So, are flips an interesting play? Definitely.

Obviously, flips carry a little more risk. You have to be a little more sensitive to all of the money going into it and what the net returns are going to be. Because a lot of the time, especially in this market, most flips will probably make you somewhere between fifty and a hundred thousand dollars.

But if you miscalculate something, it’s going to eat up a large portion of your profits. You have to remember that there are obviously tax implications, there is interest along the way, there’s the carrying cost you have to consider.

On the buy and hold side, there are obviously also tax implications. However, it’s just tax on your actual cash flow – on what you’re bringing in. 

Generally speaking, even if you have to apply a little bit of depreciation on the property, you can almost net-net it down to zero in order to postpone any major tax implications. In Canada, we never get away scot-free: it’s just a question of postponing the timeline.

So, buy and hold. Which one’s better? If this property is going to represent your active income, the money that you’ll live off of on a daily basis, then you’re going to have to go through more flips. This will yield a greater payout that’ll be more substantial or sustainable for a year.

If you’re just looking to create some smaller cash flows, primarily to add on to what you’re already doing and really get into the market for the long-term play, then the buy-and-hold is more aligned with your goals.

Want to talk more about real estate investing? We have years and years of experience – and we love sharing what we know!

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