Flip vs. Hold: Which is the Smarter Choice?

We talk frequently at Evernest about how to build wealth through real estate, and regular readers will know that we tend to be big fans of holding investments as rentals. As much as we advocate for playing the long game, however, we know that buy & hold is not the right strategy for every deal. 

As an investor, you’re bound to eventually find yourself asking: is it worth hanging onto this property or am I better off selling it now?

On paper, both can make money, but the right answer depends on the details of the property, your investment goals, and your personal situation. In this post we’ll be breaking down the key things to consider when faced with the question of whether to hold or flip.

Cash Today vs. Wealth Tomorrow

There are a lot of differences between flipping and renting but when it comes to their financial impact, it really boils down to this: flipping generates active income, renting builds wealth long term. 

Both have advantages as well as drawbacks. 

The main advantage of flipping is that it creates the kind of cash flow that makes real estate investment sustainable in the immediate term. If you’re a full time investor, profits from flips can enable you to buy food, pay your bills, and fill your gas tank for months. Plus, those profits can be used to fund subsequent deals and grow your business. 

The downside is that once a flip is sold, that’s it. You only get paid for it once and then you have to start over with a new flip to get paid again. Plus, flipping is only good for sustainability if the market supports it. If the deal flow slows down, so does the income.

With rentals, it’s kind of the opposite. Whereas a single flip can cover your expenses for months, it’s highly unlikely that owning one rental property, or even several, will generate the kind of monthly cash flow required to quit your W-2 job. Depending on the property, you can even end up with negative cash flow at first when you buy and hold.

However, buy and hold is the strategy that makes investing sustainable long term. The cumulative effects of monthly cash flow, appreciation, increased equity, and tax advantages make the asset more valuable the longer you keep it. As long as you buy the right property and stay on top of upkeep, a rental will ultimately pay you more (a lot more) than a flip. 

When You Should Buy and Hold

If you’re someone with a W-2 job investing on the side, particularly if you’re a high-earner, the math most often leans toward holding. 

Having solid income from a day job means you can afford to invest in assets that might pay little (or even cost you) at first in the interest of long term wealth creation. Plus, given how labor intensive and time consuming flipping is, the pay off is rarely worth it if you’ve already got a reliable source of cash. 

Buy and hold is also usually the smartest choice if you’re investing in properties in class A or B neighborhoods. Generally, the cash flow from rentals in these neighborhoods isn’t strong, but appreciation is excellent. If you can afford to hold out for a few years breaking even, placing a good tenant in a good house in a good neighborhood is the best way to win playing the long game. 

Acquiring properties with value-add opportunities in C class neighborhoods can also be a good buffer for your portfolio, especially if you invest full time. While assets in these neighborhoods don’t usually appreciate the way that properties in higher-end neighborhoods might, they can provide solid, predictable cash flow that makes your business and career more sustainable than relying solely on flips or income from lower-paying but higher-value rentals. 

When Flipping Makes More Sense

Flipping can be very exciting and financially rewarding, but it is a lot of work, takes a lot of skill, and comes with a lot of risk. For those with other income streams, the case for flipping is rarely as strong as for buy-and-hold. However, there are situations where flipping is the better choice:

1) You Need Capital Back Quickly

If you only have $60K available and you tie it up in a rental that barely cash flows, your ability to grow as an investor slows dramatically.

Flipping allows you to recycle capital, build reserves, and increase buying power much faster. Big infusions of cash from flips can really accelerate your investing trajectory, especially early in your career. 

2) The Rental Numbers Don’t Work

Sometimes the property is in a great area, but the rental market simply doesn’t support the kind of rates you would have to charge to generate positive cash flow. If the resale market is strong, however, a few strategic upgrades can make it a profitable flip. 

3) You Just Love Flipping

Some people flip because they love finding deals, negotiating, solving problems, transforming properties, and managing projects. 

If you’re looking for the best ROI with the least risk and lowest cost to your time, flipping isn’t going to be for you. But if the whole process of flipping brings you joy and satisfaction? Go for it. 

Considerations For Those Without Tons of Capital

If you’re earning under six figures at your day job and want real estate to move the needle, the decision to flip or hold gets more nuanced.

You probably don’t have unlimited capital to leave in properties, which means you need to be especially strategic when evaluating deals and choosing your exit strategy.  

Think about it this way:

• Flips are for cash reserves- When you lack cash, projects that end in big lump sum paychecks can make a huge difference. Choose deals carefully and focus on deeply discounted properties in areas with dependable resale markets. A few strong flips early on can build the capital you need to grow a rental portfolio.
  
• Rentals are for long-term wealth- If your ultimate goal with real estate is to get off the hamster wheel and build lasting financial security, rental properties are the way to achieve it. Invest the money you earn from flips strategically into homes with good appreciation prospects and hang onto them. 

One thing you shouldn’t do is take your limited funds and gamble on holds in Class D neighborhoods. Even if the cash flow looks amazing on paper, the reality tends to be high turnover, constant maintenance, drama, and poor appreciation. Wait until you have the capital to buy in a better area before building your rental portfolio.

Invest in Properties That Give You Options

Some houses might make better flips, some might make better rentals, but the best exit strategy shouldn’t be your only exit strategy. 

Every good investor goes into a new deal bearing this brutal truth in mind: things change.

Hot resale markets can cool down, HOAs can decide that rentals are no longer allowed, buyers can back out, and appraisals can come in light. If plan A was the only viable plan, you’ll be stuck holding the bag. 

So, don’t buy a property as a long term hold unless you know that reselling it is a fine option too, and vice versa. 

Don’t Dwell on the Ones That Get Away

Every investor who’s been in the business 10+ years has a story about a property they sold right before the neighborhood became the new hotspot. 

Is it a huge bummer to know you could have owned a property worth double or triple what you paid for it? Of course. But here’s what you have to remember:

If you’re investing full time without another income source, you simply can’t hold onto everything. You need active income to live and grow your business. You’ll stall out quickly if all your decision-making is based on future possibilities rather than present realities. 

That’s why most successful long-term investors balance:

• Active income- flips and wholesales in neighborhoods with dependable resale markets
  
• Long term holds- well-chosen homes in safe neighborhoods with solid appreciation

Final Thought

Flipping builds capital, holding builds wealth. The smartest investors learn how to use both. 

If you want to make a career out of real estate, knowing when to flip or hold based on the property and your financial situation is a critical skill. Structure your deals with flexibility, think beyond the first exit strategy, and apply clear thinking to how each property fits into your present reality and long term goals. 

Need help evaluating deals or finding investment properties in your area? An Evernest Investor-Friendly agent can help. Reach out today to get started.