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Fix And Flip Or Buy And Hold: Which Is Better?

Real estate represents one of the most profitable investments today. Most investors choose to either be house flippers or buy-and-hold owners. These popular real estate investment strategies provide a path to making considerable money but through different means.

Whether you should fix and flip or buy and hold depends on your investment goals, personality, skill set and personal preferences. Here’s a closer look at both investment strategies, their pros and cons and how to determine the right path for you.

Why Invest In Real Estate?

Most properties increase in value over time. The need for housing will always be there.

Real estate investing allows you to add monthly income, increase your cash flow, build equity and enjoy some tax benefits, too. While there’s still a risk involved, real estate is a stable long-term investment in most cases. Plus, it’s a great way to diversify your portfolio, adding another long-term income stream.

Real Estate Investment Strategies:

Fixing And Flipping

House flipping is where you buy a property at a discounted price, like a foreclosed home. Then, you fix up the house through renovations and sell it for a profit.

Flipping a house requires an initial investment of money and time. The goal is to buy, fix and flip the property as quickly as possible. Turning over a home quickly is one of the keys to making the most profit.

House flippers either hire contractors to fix up the home or opt to do the work themselves. How you go depends on your personal home repair experience and how much time you can devote outside of other career, family and life commitments.

Buy And Hold

Buy and hold real estate investors are looking for long-term profitability and passive income. They purchase property, intending to rent it out to generate monthly income.

Landlords collect rent each month, using it to pay down the mortgage and build up equity. It also allows you to increase cash flow to invest in other properties or other investments.

Many buy and hold investors opt to use a property management company, so they don’t have to worry about day-to-day issues with renters.

Buy and hold investing can be long-term, keeping the rental property indefinitely or for a designated time and then selling it for a profit. Unlike flipping a house, success isn’t solely tied to the property’s sale.

Pros And Cons Of Flipping

Pros

  • Faster gains: Flipping houses is one of the best ways to turn a large profit quickly. Much of this depends on the property’s cost and the upgrades needed to sell it. If most of the improvements are cosmetic, you can quickly turn the home with a lower time and financial investment.
  • Experience: So much goes into flipping houses. From the home buying process to performing home repairs to selling, you can gain a near-complete real estate education. As you continue to invest in new properties, you’ll learn how to spot good deals, avoid bad ones and how to lessen the risks involved.
  • Flexibility: House flipping is more fluid than other investments. In most cases, your money isn’t tied up long term. This allows you to reinvest your money quickly.

Cons

  • Taxes: The profits you make from the sale of your flipped home are subject to tax payments. Depending on how long you hold the home before it sold, you could end up paying expensive capital gains taxes.
  • Risk of loss: Fixing and flipping a house may be less risky than other investments, that doesn’t mean there are zero risks. It’s possible that the purchased home needs more work than you initially thought. Extra repair costs will eat up your profits quickly. Also, there’s no guarantee that the property sells sell quickly, which means additional mortgage payments, utility expenses and more.
  • It’s expensive: Yes, there are costs involved to buy the property and fix it up. But don’t forget that it costs money to sell a home, which cuts into your profits. Closing costs, real estate agent commissions, and other expenses affect your investment too.

Pros And Cons Of Buy And Hold

Pros

  • Passive income: When you rent out the property you purchased; you’ll receive steady monthly rent checks. Finding a renter is often easier than finding a buyer since there’s less commitment needed.
  • Appreciation: As you hold on to your property, appreciation occurs naturally. There’s no need to flip the property quickly. You can enjoy the increased income each month and sell when market conditions are ideal, and your property value has increased.
  • Tax advantages: While flipping a house could lead to expensive tax bills, rental property owners enjoy a host of tax benefits. The list of tax deductions is long and includes mortgage interest, insurance premiums, property management fees, property taxes and more.

Cons

  • Dealing with people: If you can find good tenants, this isn’t as much of an issue. As a landlord, you have to set rent rates, screen potential tenants, collect monthly payments, respond to requests and complaints and more. Also, tenants don’t have as much invested into the property, so there’s a good chance they don’t keep it in as good of shape as you would like.
  • Upkeep: Just like your own home, rental properties require maintenance. Whether it’s simple upgrades or more serious repairs, you’re responsible for whatever was agreed upon in the rental agreement.
  • Vacancies: Rental properties can turn a great profit, but only if they are filled with tenants. The last thing you want is someone to move out, and the property sits unused long term. Then, it becomes like a second home, with mortgage payments and utility costs.

Should You Fix And Flip Or Buy And Hold?

Both fix and flip and buy and hold can be profitable investment strategies. The right choice for you, if any, depends on your investment goals. Here are four questions to ask yourself to determine which investment lines up with your needs the best.

Are You Looking For Active Or Passive Income?

Flipping a house has a simple premise – get in and get out. It can require considerable work upfront to flip a house, though, especially if you opt to fix it up yourself. However, you get your money faster than if you bought a property and rented it out.

If you plan to buy and hold, you may find a turnkey or other property that requires little work. You could quickly find a tenant and start making passive income each month.

How Much Money Do You Have To Put Into The Home?

Regardless of which path you choose, the amount of money you have to put into your investment will determine what you can afford. Flipping a house requires more capital upfront when you include in any repairs and other expenses. Make sure you have enough capital to finish the flip.

What’s The Risk And Return Ratio?

There’s an element of risk with any investment. It’s essential to decide how much you’re willing to risk and how much you desire to get back in return with real estate investments. Your risk and return ratio compares your investment’s expected returns and the amount of risk required to achieve that return.

Can You Build Your Portfolio To Do Both?

As you invest in real estate, you may get to the point where both options are feasible. Then, it’s a matter of whether it makes sense to do both. Each comes with its own set of risks, time commitments and potential for significant returns.

There’s a reason that real estate is a popular investment strategy – it works. Whether you choose to fix and flip or buy and hold, spend time researching and focus on a game plan going forward. You’ll likely run into issues regardless of which one you choose. Determine your investment needs and how much money and time you have to invest in a real estate project and go from there. Both options require your commitment and energy to turn a profit.

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Negotiating Tactics To Sell Your Home FSBO

Negotiation is about more than giving and taking. It’s the skill of crafting an agreement to everyone’s satisfaction. It can make the difference between an accepted offer or a deal completely falling through. Being on top of your negotiating game is critical when selling your home. Read on to learn how to prepare for some common tactics buyers use when negotiating with sellers.

How To Prepare To Negotiate Your Home Sale

Your house is up for sale, but that’s just the beginning. There’s prep work to do before you start the negotiation process with buyers. Much of it boils down to being prepared. Here are steps you can take to help address some common buyer negotiating tactics.

1. Get your home in order

Start by getting your house in first-class condition so the buyer cannot bring up any significant objections. Fix or upgrade anything that may become a sticking point in the negotiating process.

A home warranty goes a long way to overcoming these objections. It brings peace of mind and is a great marketing tool for you. Buyers may still have concerns but addressing more significant issues can go a long way in shortening the list.

2. Discover buyer motivations and pressures

Ask questions to learn more about why a buyer is searching for a new home. Are they relocating because of work? Are they working with a tight timeframe? Learning more about a buyer can guide how to appeal to them while keeping your top priorities in mind. On the flip side, don’t disclose your own motivations or pressures, which could be used against you in negotiations.

3. Know your local market

Do your homework about recent local sales, especially ones that support your asking price.

Obtain an appraisal of your home before you start the home selling process.

In a strong or rising market, you can price your home slightly above the appraisal. In a weak market, peg your asking price at the appraisal and prepare all the items you feel that the appraiser missed. If the buyer does not see the value, you can use the appraisal to help support your position on the price when you enter negotiations.

4. Practice your presentation

Practice is one of the keys to improving skills in most areas of life. The same is true with selling and negotiating. Study selling points for your home. Have dates on hand if you’ve made any recent upgrades to improve your home’s value. Make a list of possible objections a seller may have and how you can respond. Practice will help you handle common buyer negotiating tactics. You know your home better than any buyer’s agent out there. Use this to your advantage.

5. Be prepared to walk away

Walking away from a deal won’t feel good now, but it’s better than living with a bad deal.

When selling your home, you must be prepared to turn down unacceptable offers or situations. You always have the option to make a counteroffer if you feel the negotiation is worth continuing.

6. Stay up to date on the latest mortgage rates and lending news

Studying the market helps you understand the lending conditions facing your buyer. It also gives you insight into factors your buyer can change and what you both need to work around.

Preparation can make all the difference when negotiating your home sale. Taking time to develop a plan to ensure a successful sale. You can also prepare by reviewing this guide to negotiating home prices.

Common Buyer Negotiating Tactics

Here are some common buyer negotiating tactics that you should be prepared for during a home sale. Having a sense of humor, smiling and speaking clearly goes a long way in the negotiating process.

Nibblers

Nibblers are nonstop negotiators. Sometimes this is referred to as nickel-and-diming. The best way to avoid nibblers is to document all items and details thoroughly that you previously agreed upon. Make sure that everything included in the sale is clearly listed.

A deal is a deal. If the buyer wants to change any details of the sale, it creates a counteroffer, which you have no obligation to accept, and they can lose their purchase. You should inform buyers that their counteroffer must be in writing, and that you may or may not accept it. Often, this will stop the nibbling.

The “Higher Authority” Negotiator

This tactic uses a third party who will need to see the home or review the contract before the sale is completed. Common examples include:

• “My parents, who are giving us the down payment, would like to see the home.”

• “My attorney needs to review the contract.”

These are last-ditch attempts to lower the price. An effective way to counter this tactic is to ask (before setting a negotiations appointment), “Is there anyone else whom you would want to be here when we finalize all the details?”

Good Guy/Bad Guy

This is a similar situation to the “higher authority” tactic. For this negotiating tactic to work, the good/bad team must be in different places so that you don’t have access to the bad guy who has all the objections. The resolution of this situation is to set an appointment convenient for all the parties to attend. If a joint consensus is necessary, don’t negotiate unless everyone is present.

Wouldjatake

This is usually a sudden statement blurted out by a buyer – often a “trial close” designed to catch you somewhat by surprise and get your confirmation on a deal favorable to the buyer. The best response to a “wouldjatake” is: “I’ll look at any offer that you present me in writing.” This response diffuses the situation immediately and allows you time to consider things.

The Trial Balloon

Trial balloons are questions designed to assess your position without giving any clues about your counterpart’s position. Essentially, these questions allow the buyer to gain information without making a commitment.

When you’re on the receiving end of a trial balloon question, you may feel compelled to answer it thoroughly. Resist and counter with another question. For example, if someone asks, “Would you consider financing the house yourself?” respond, “Well, if I did, what would your offer be?” The expected response should be a higher offer from the buyer as they’re not as strong as a buyer who can qualify for conventional financing terms or pay cash.

The Red Herring

Buyers sometimes focus on minor issues to distract a seller from the main issue. Your best bet is not to engage and instead suggest coming back to their point after working out more pertinent details.

Meet In The Middle

A common buyer negotiating tactic is to counter your selling price with a low counteroffer and then suggest that you meet in the middle. Realize that this is just a lower counteroffer, not necessarily a fair compromise. Meeting in the middle sets a precedent for the rest of your negotiations. Stand firm with your price if it’s fair. Another option is to tell them you’re open to discussing changes to the deal, but meeting in the middle isn’t an option.

Whatever tactics a buyer uses, keep calm, avoid showing too much emotion, and stand your ground on points of the deal that matter to you.

Negotiating Advice For Sellers

Negotiating the sale of your home doesn’t have to be a painful process, even if you don’t have prior experience. Here are some things to keep in mind during the home sale negotiation process.

Start With A Fair Price

Pricing is the primary factor in almost every home sale. Setting a fair price immediately removes a significant point of contention. Any lower counteroffer thereafter must be reasonable and fair.

Have Realistic Expectations

It’s rare to get everything you want during a negotiation. Make a list of areas of compromise and your nonnegotiables. Understand that most sales will involve some negotiating, even if a buyer loves your home and the price.

Be Clear

If you’ve done your homework and arrived at a fair price, have facts to share on how you arrived at that price in case you’re asked. Even if they don’t like the offer, they’ll know that you’re well prepared to negotiate.

Respect The Buyer’s Important Issues

You may be able to strengthen your own positioning by knowing and respecting items of particular importance to the buyer.

Be Prepared To Compromise

If you try to win every point, you could sour the deal. Both parties should walk away “relatively” satisfied with the final terms.

Put Minor Issues Aside

If you cannot agree on minor issues, put them aside, and complete the main agreement. With the main agreement completed, you’ll find minor issues are far easier to settle.

How To Negotiate When Selling A Home

Buyers don’t have exclusive rights to negotiating tactics. As the seller, you have options, too.

Here’s a couple of practical strategies you can use when negotiating your home’s price.

Silence

When used strategically, silence is a powerful negotiating tactic for you to bring into play. If you’ve stated your price and you’re waiting for a response, just sit back and wait. Most people feel uncomfortable when conversation ceases. The buyer (and their agent) will be expecting you to start waffling on your price. Don’t say a word!

Almost without fail, your counterparts will start whittling away their position when you use this tactic. Buyers will have been primed to expect you to back off your price or qualify it. You’ll see their discomfort in their body language when they perceive by your silence that you mean business.

What if the buyer decides to use silence as a tactic too? Simply wait, and then restate your price. Don’t make suggestions or offer concessions. Just repeat your terms. Doing so forces the other buyer to respond, and more often than not, they respond with a concession.

The Wince

Body language is a powerful tool. Using a wince conveys your negative reaction to something the buyer or their agent is suggesting without resorting to an argument or other negative verbal responses. It alerts your counterparts that you know your limits, and they may be approaching them.

Buyers use winces too. If you are on the receiving end of the wince, counter them with silence. To do anything else will weaken your position.

Practice Your Techniques

Preparation and practice are essential. Take time to rehearse these methods to be comfortable using them and recognize the precise moments when to use them. You will be pleasantly surprised when you watch the results. The better you prepare and practice, the more satisfied you’ll be with the entire transaction.

Understand Your Options As A Seller

Ultimately, as the seller, you have some options during the negotiating process. Understanding the choices at your disposal will help you avoid any possible bad deals.

You Can Decline A Full Price Offer

Sellers can decline any offer, including full or above asking price offers. Some common reasons you may do this is if you receive offers at a higher price but less desirable mortgage options, like FHA instead of conventional.

You Can Counter Any And All Offers

You can even make a counteroffer for higher than your original asking price. This is most common in a multiple bid situation when one (full price) offer is better than the other. It’s important to note that all counters (which should always be in writing) are a decline/rejection with a new offer. This means that the original offer is void, and the party making that offer/counteroffer is no longer bound to the terms of their offer.

You Can Withdraw A Counteroffer

In most cases, the seller can withdraw a counter offer up until the time of “delivery” of the buyer’s accepted offer. The delivery is a key piece as the buyer’s agent must deliver the buyer signed offer to you to be binding. If this hasn’t happened yet, you may be able to withdraw.

It’s always best to seek an attorney’s advice when contemplating complex legal matters such as those mentioned throughout this article.