I’ve come to believe that neither a short-term or long-term hold in regards to real estate investing is better than the other; they’re just remarkably different.  Like so many things, different choices are better for different types of people in different types of situations.  It’s simply a matter of researching both options and aligning your own expectations and needs with whichever type of loan best fits those needs.

Let’s look at a short-term hold.  Many people assume that all short-term holds are rehab properties, while actually, short-term investing is anytime an investor holds a property—without necessarily “fixing it up”—for a short amount of time.  Professionals differ on their exact definition of this length of time, but most consider short-term hold as anything less than five years.  The investor in this situation relies more on positive cash flow versus appreciation to generate an increase in their assets.  Many short-term investors make their money based on this monthly positive cash flow which generates a larger profit margin than long-term investors due to the unique types of loans ideal for short-term investments.

Also falling under the umbrella of short-term holds, are rehab investments.  These are the types of investors you see on television with paint smudges on their overalls as they give their investment a makeover.  Typically rehab investing involves purchasing a home at a low price, fixing it up (either cosmetically or structurally), and then selling it for a profit.  This is an idealized, simplified explanation, but it covers the typical elements found in most rehab investments. 

The main advantage with rehabbing investing and all types of short-term investing for that matter, is that your payday comes much sooner than those who invest long-term in properties.  A short-term hold also allows your invested money to turn liquid again relatively quick.  And this type of investment is an especially appealing approach if the real estate market is soft, because, assuming the property is purchased correctly, you can typically make money even in a soft market.

Many people that begin with the short-term holds described above, transition into long-term holds because of the unique set of advantages available to those who choose to wait.  One of these advantages is that property values usually appreciate at a greater rate than the rate of inflation, which is typically 3%.  This allows the adequately-prepared long-term investor to ride out changing markets, holding onto the assurance that appreciation trends are, indeed, on their side.  And, unlike those who have a short-term perspective, long-term investors can afford a slightly negative monthly cash flow due to the highly lucrative payday down the road.

It should be noted, that it takes a certain type of person to be an effective long-term investor.  For example, some investors just don’t want to deal with tenants and the inevitable rental property repairs.  Other investors simply don’t have enough income/savings to handle renter emergencies and rental repairs that will inevitably surface.  If you don’t have the resources to make your long-term investment a stable investment, then it’s a good idea to build up your assets first.  Start out by flipping properties, for example.  Successful short-term holds can always lead to additional rehab or long-term investments down the road.