owning rental property or buy and flip

But what  if there are some additional problems with the  property when  Joe opens up the  walls to replumb his new investment gem? Maybe  there are termites or roof leaks  or problems with the  foundation. What if the  demand for this  property diminishes and  he has  to hold  the  property for 12 months? (Some  folks got burned in the  late-2000s when  the  demand for housing sud- denly  evaporated.) Even in the  best scenario, where Joe has  accurately esti- mated the  repair and  upgrade costs and  there are no surprises, he finds  that just  owning  the  property for six months longer than he expected doubles the holding costs from $8,000 to $16,000, reducing the  pre-tax profit to $4,000. By the  time he is done paying  30 percent of that in taxes, Joe has  just  $2,800 to show  for his efforts. Owning rental property.

You may be located in a market that has  experienced rapid housing price increases, but be careful. If there is too much excess demand for new housing in the area, real estate speculators — not long-term investors or homeowners — can make up the majority of the purchasers. This tendency can be dangerous when  the majority of buyers in the market are looking  for the quick  profit rather than a long-term, stable real estate investment. When enough of these specula- tors head for the exits (as happened in some areas in the late-2000s real estate market decline) and don’t return, prices can quickly  turn tail. The speculators are then forced to mitigate their losses by renting out their properties (some- times for years) until the real estate market rebounds and they’re able to sell
the property to break even.

But we’re pragmatists — we know that lightning may strike and you may run into a property that turns out to be a buy-and-flip candidate.