Princeton Capital Blog

Should You Flip or Hold Your House in 2015?

January 21st, 2015

MortgageShould You Flip or Hold Your House in 2015?

Home sales are projected to increase next year, which could work to the advantage of investors. And it looks like mortgage interest rates will slowly rise over the next twelve months.

But, if you’ve been following real estate trends, the only thing that is certain is that once you think you know what’s going on, it will change in a different way. Looking at the nation’s housing and economic indicators, the positive news seems to justify continued investor optimism in 2015. At the 2014 Realtors Conference & Expo, Lawrence Yun, chief economist for the National Association of Realtors, predicted a rebound for existing home sales for the next two years and projected the national median existing-home price will rise at a moderate 4 percent in each of those years and the National Association of Home Builders, said in an October webinar that multi-family housing starts were projected to hold steady in 2015.

According to RealtyTrac’s Q3 2014 home flipping report, the volume of properties being flipped has declined dramatically, down from the most recent peak of 8.8 percent of all single-family home sales in the second quarter of 2012 to 4 percent of all home sales in the third quarter of 2014.

A home that is flipped is one that is purchased, quickly repaired or remodeled, and then put on the market again for a profit. The opposite is buy-and-hold real estate investments, or what you would call rental property. In 2014 gross rental return was down slightly compared to 2013 in the 586 counties surveyed by RealtyTrac, but it was still quite good, especially in markets where inventory is tight.

And where inventory is tight, there tends to be bidding wars for existing properties. That would greatly reduce the profit margin on a flipped home.

So, here are five reasons to hold onto the property this year:

  1. Residual Income: Passive income from rent creates monthly income versus a one-time payment which can be nice if you’re looking into income replacement.
  2. Tax Benefits: House flippers may pay a much higher tax rate than long-term investors. (But talk with your tax professional for more information on your particular situation)
  3. Agendas: A house flipper is subject to numerous outside agendas that affect if and how success is found.
  4. Whims of the Market: If you flip the house, generally, you want to sell quickly to recoup your expenses. If the market is such that no one is buying, you don’t get to sell. If you choose to look at the property as a long term investment, you can sell when you are ready.
  5. Risk: When you flip a home, you have monthly carrying costs such as the loan payment, taxes, insurance that will add up each and every month until the home is sold, so you have to make sure you have enough money in the bank to cover it.

For some, the thrill is in the fixing up of the house. For others, it’s a long term passive income stream. So should you hold or sell this year? It all depends upon your long term financial plan.

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