Some investments are fundamentally designed to work better as long-term strategies, offering their greatest benefits if you hold those assets over the course of decades. Other investments are much better suited to short-term management, offering the opportunity for lightning-fast decision making and potentially enormous returns in relatively short spans of time.
Depending on your previous experience with real estate, you might believe it to belong to the former category or the latter category. At first glance, many people believe real estate is a long-term investment decision, potentially because mortgages last 15 years or 30 years by default.
Real estate investment can be highly versatile, fitting both short-term strategies and long-term investments depending on how it’s managed. While long-term rentals provide steady rental income over time, short-term rentals offer the potential for quick returns and higher profits in dynamic markets.
But is real estate investing better treated as a short-term or long-term strategy?
The Case for Short-Term Real Estate Investing
Short-term real estate investing can work, and can be quite advantageous, depending on how you approach it.
- Flipping potential. House flipping can be enormously profitable – if you know what you’re doing and are a bit lucky. Flipping houses is the strategy of buying cheap and often rundown houses, then fixing them up, making improvements, and listing them on the market. Usually, this process happens over the course of a few months, making it a viable short-term investment strategy. Experienced house flippers can engage in this process quite reliably, making a significant profit with every property sold. However, it’s important to realize that house flipping can also backfire, and it’s always a significant risk.
- Financial leverage and risk management. One of the greatest advantages of real estate investing is the possibility of attaining financial leverage, or using someone else’s money to increase your potential buying power. This is a way of artificially increasing your capital and widening the range of properties you can choose from, but it also introduces more risk. If you take advantage of more short term rentals and opportunities, you can take advantage of financial leverage while also deliberately controlling your debt ratio to avoid suffering from excessive risk.
- Constrained variables. Some people are intimidated to invest in real estate because there are so many unknown factors. It’s almost impossible to say what the economy is going to look like, or what the real estate market conditions is going to look like, in 10 years, let alone 30 years. Practicing short-term strategic decision making is a way of constraining the variables available to you; if you only have to think about the next 2 or 3 years, instead of the next 20 or 30, you can make much more informed decisions.
- Faster, more frequent decisions. Also, short-term decision making allows for faster, more frequent decisions. As your risk tolerance, capital holdings, and disposition change, you can rapidly and easily update your portfolio. This makes short-term real estate investors much more agile and flexible.
The Case for Long-Term Real Estate Investing
There’s also a case to be made that long-term real estate investing is better.
- Fee, closing cost, and expense avoidance. Buying or selling a property is usually associated with fees, commissions, marketing costs, closing costs, and other expenses. Accordingly, buying and holding properties for a long time can help you save money in all these areas; buying and selling properties too frequently can artificially increase what you pay, without significant upside.
- Due diligence minimization. Real estate investing carries risk. Most long term investors know this, and deliberately practice due diligence before making any major financial decision in the real estate world. If you want short-term investments and make decisions faster and more frequently, you may not have the time necessary to do better research and make better decisions, or you may put yourself through too much research and end up burning out. Long-term investing is slower, steadier, and less stressful.
- Reliable income and familiarity. Once a property starts generating a reliable passive income, you’ll want to hold it for as long as possible. Rental income from good properties is reliable, steady, and familiar. This makes it ideal for people who want conservative, stable investments that make long-term planning easier.
- Long-term appreciation gains. Buying and flipping distressed properties can make you some money in the short term, but it’s arguably better to capitalize on long-term property appreciation gains, especially if you’re invested in a neighborhood poised for growth. Real estate is one of the most historically valuable investment classes available, and historical precedent implies that anyone who holds onto properties for decades will benefit strongly from it.
- Tax benefits. Holding property also comes with some tax benefits, giving you access to more deductions and advantages. Work with a tax professional to better understand these benefits and take advantage of them.
Which Is Better for You?
While most people and situations favor real estate investing as a long-term strategy, complete with long-term decision making, there are also plenty of short-term opportunities to take advantage of.
So, which path should you pursue?
That depends on several variables, including:
- Your overall plan. What is your overall plan? Are you trying to turn this into your main career? Is this just a way to diversify your portfolio? Are you optimizing for the near term or long term?
- Your financial standing. How much money do you currently have? What is your income like?
- Your risk tolerance. Similarly, how much risk can you afford to take on? Would you prefer high-risk, high-reward investments or slower, steadier ones?
- The rest of your portfolio. What does the rest of your investment strategy portfolio look like? Would it be better complemented with short-term or long-term investments?
Keep in mind that you don’t need to choose one or the other. It’s possible to segment your real estate investment strategy into both long-term and short-term components.
Making real estate investing and Houston property management decisions is tough. It’s even tougher if you have to make them all by yourself. But with the help of seasoned real estate agents and property managers on your side, everything becomes much easier.
That’s why we’re here at Green Residential – to help your real estate investments succeed. So if you’re interested in learning more, contact us today!
Tiffany is the Director of Operations at Green Residential.She has been in the multifamily property management industry for 7 years, serving most recently as an Area Manager in Nashville, TN. Tiffany specializes in all aspects of the property management process.
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