Investment Strategy 101: Time in the market versus timing the market
Real Estate Investing
While the blue-chip companies are a great example of how buy-and-hold can be an effective investment strategy for stocks, you're probably thinking: aren't we here to talk about real estate?
What do the buy-and-hold investors like Warren Buffet and day-traders like Paul Tudor Jones look like in the real estate world? Two profiles emerge - property investors who purchase real estate and hold onto it for the long term, like Bonus, and property flippers, who buy houses at a low, invest in its repairs, and then sell it at a higher price. Both of these real estate strategies are derived from the stock market strategies discussed earlier, and they present many of the same pros and cons.
Let's talk about two ways to make $500,000 through real estate investing.
Like a market timing investor, property flippers have to stay attuned to the real estate market, have readily available funds to purchase a property, and are more subject to market volatility than longer-term investors. For example, the post-pandemic world has led to record high sale prices on homes, even those needing repairs. If a property flipper can purchase a home at a low price and sell it, they can undoubtedly yield a profit on their investment and an active income. Mark Ferguson is a professional investor and a member of the Forbes Council and reported that in 2019, his average profit per flipped home was $36,000. With that average in mind, investors like Mark would need to buy, flip and sell roughly 15 houses per year to make $500K in profit. That is one house every three weeks, and considering that Rocket Mortgage claims that it takes an average of 30-45 days to close a house, this is a challenging pace to maintain. While this might be different in today's market, where homes are selling at an all-time high, what happens when the market drops? The investor has to increase the number of houses flipped and deals closed to make the same amount of money. This sounds like a lot of work, doesn't it?
Let's flip the story and look at the longer-term approach to real estate investing: the buy-and-hold strategy. With this approach, investors can generate passive income through rental income and take advantage of the home’s inevitable appreciation, should they choose to sell at a later time. More importantly, long-term real estate investments protect people from short-term market fluctuations that directly impact shorter-term strategies. We can see this clearly when we look at market trends, such as those provided by the Census Bureau and Federal Reserve, tthat show that home values have increased nearly 170% over the last decade, despite significant market recessions. Following this logic, if your home is worth $700,000 today, you could make almost $500,000 in profit over the next decade just by holding onto it, in addition to earning passive rental income.
The advantages of the buy-and-hold strategy are nearly endless. Your house's value is almost certain to increase over time, resulting in a significant profit. You already own the home and don't need extra capital to invest. There is no need to constantly worry about the market's behavior. In some cases, there may also be potential to earn passive income through rent as time goes on and your financial obligations decrease.
So, are there any downsides? The first potential cause for concern is the amount of time it takes to see sizable appreciation on the property - you will likely have to hold onto the home for 5+ years to see a substantial profit. Then there is the aspect of managing the property for the long-term, which can be relatively involved and costly for the property owner.
Enter Bonus. The Bonus platform is here to give you an alternative to selling, allowing you to reap the benefits of owning an investment property without the downsides! The Bonus partnership helps you keep your home for the long term. We give you the capital you need to move to your next home and handle the management of the property on your behalf, making sure that you never have to worry about the market, managing the house, or its growth in value over time.
Bonus is here to give you access to the buy-and-hold strategy and makes holding onto your home as easy as holding onto a stock- all while letting you use your own equity to unlock the cash you need for your next move.
Click here to learn more about how Bonus is a better alternative to selling your home.
What do the buy-and-hold investors like Warren Buffet and day-traders like Paul Tudor Jones look like in the real estate world? Two profiles emerge - property investors who purchase real estate and hold onto it for the long term, like Bonus, and property flippers, who buy houses at a low, invest in its repairs, and then sell it at a higher price. Both of these real estate strategies are derived from the stock market strategies discussed earlier, and they present many of the same pros and cons.
Let's talk about two ways to make $500,000 through real estate investing.
Like a market timing investor, property flippers have to stay attuned to the real estate market, have readily available funds to purchase a property, and are more subject to market volatility than longer-term investors. For example, the post-pandemic world has led to record high sale prices on homes, even those needing repairs. If a property flipper can purchase a home at a low price and sell it, they can undoubtedly yield a profit on their investment and an active income. Mark Ferguson is a professional investor and a member of the Forbes Council and reported that in 2019, his average profit per flipped home was $36,000. With that average in mind, investors like Mark would need to buy, flip and sell roughly 15 houses per year to make $500K in profit. That is one house every three weeks, and considering that Rocket Mortgage claims that it takes an average of 30-45 days to close a house, this is a challenging pace to maintain. While this might be different in today's market, where homes are selling at an all-time high, what happens when the market drops? The investor has to increase the number of houses flipped and deals closed to make the same amount of money. This sounds like a lot of work, doesn't it?
Let's flip the story and look at the longer-term approach to real estate investing: the buy-and-hold strategy. With this approach, investors can generate passive income through rental income and take advantage of the home’s inevitable appreciation, should they choose to sell at a later time. More importantly, long-term real estate investments protect people from short-term market fluctuations that directly impact shorter-term strategies. We can see this clearly when we look at market trends, such as those provided by the Census Bureau and Federal Reserve, tthat show that home values have increased nearly 170% over the last decade, despite significant market recessions. Following this logic, if your home is worth $700,000 today, you could make almost $500,000 in profit over the next decade just by holding onto it, in addition to earning passive rental income.
The advantages of the buy-and-hold strategy are nearly endless. Your house's value is almost certain to increase over time, resulting in a significant profit. You already own the home and don't need extra capital to invest. There is no need to constantly worry about the market's behavior. In some cases, there may also be potential to earn passive income through rent as time goes on and your financial obligations decrease.
So, are there any downsides? The first potential cause for concern is the amount of time it takes to see sizable appreciation on the property - you will likely have to hold onto the home for 5+ years to see a substantial profit. Then there is the aspect of managing the property for the long-term, which can be relatively involved and costly for the property owner.
Enter Bonus. The Bonus platform is here to give you an alternative to selling, allowing you to reap the benefits of owning an investment property without the downsides! The Bonus partnership helps you keep your home for the long term. We give you the capital you need to move to your next home and handle the management of the property on your behalf, making sure that you never have to worry about the market, managing the house, or its growth in value over time.
Bonus is here to give you access to the buy-and-hold strategy and makes holding onto your home as easy as holding onto a stock- all while letting you use your own equity to unlock the cash you need for your next move.
Click here to learn more about how Bonus is a better alternative to selling your home.
