Fix and Flip vs Buy and Hold: Which Property Investing Strategy works best? (2024)

Aspiring property investors can, and often have to choose between the ‘fix and flip’ or the ‘buy and hold’ property investing strategies. Both strategies have their pros and cons, as well as a very different game plan.

If you’ve been reading my articles, you may be familiar with the BRRRR strategy that I often share. The BRRRR strategy is a Buy and Hold strategy and my personal preference.

In this article, I (try to remain unbiased and) share the differences between the ‘Fix and Flip’ vs ‘Buy and Hold’ property investing strategies. Hopefully, it will help you make better choices when you’re looking to invest in your next property project.

First up, let’s look at the Fix and Flip property investing strategy.

Fix and Flip strategy

Property investors who use the Fix and Flip strategy aim to purchase a property, refurbish it and then sell it for a higher price.

When looking to flip properties, you’ll want to target properties in the best possible locations because you’ll be selling to new families or aspirational folks who want to live in that area. Such locations are usually near the city area, near working areas or near schools.

Comparatively, if you’re looking to buy and hold properties, you do not go for the most expensive or upper-class areas because your rental yields would be too low.

Fix and Flip projects tend to be short term, I share my most recent Fix and Flip project that was done in Glasgow below. But first, let’s look at the pros and cons of flipping properties:

Pros of Fix and Flip strategy

1. Good cashflows

You can get pretty good cash flow with two to four projects a year.

In the past, smaller contractors in Singapore were able to get pretty good returns by funding their projects using bridging loans from friends and family.

If you know how to and can lead a team, handle the project management and refurbish a property profitably, the Fix and Flip strategy can provide good cash flow.

2. Suitable when you have group of trusted builders of contractors on site

Usually, flippers start out as contractors before becoming small-time developers.

3. If unable to sell, keep for rental income

With flip projects, your cost is low and hence your breakeven could be faster and your yields are higher, compared to new off-plan properties where you’ll be paying a portion of the developer’s profits.

4. May not need a mortgage or bank loan

If you manage your costs well and can flip the property profitably, you often time do not require additional bank loans or mortgages.

You’ll just need to pay off the bridging loans. By the way, if you prefer to learn by watching or listening, I talked about ‘Fix and Flip’ vs ‘Buy and Hold’ in this video:

Fix and Flip Project in Glasgow: 52.5% ROI

At the height of the COVID crisis in July 2020 when everyone was panicking and learning to deal with the lockdowns, I completed a fix and flip project.

My team managed to acquire a terraced house in Glasgow for £116,500. We refurbished it and sold it within 6 months for a return of investment of 52.5%.

Cons of Fix and Flip strategy

1. Cost may overrun by 30-100%

There may be unforeseen situations that could directly affect your costing.

For example, during the COVID crisis, material costs have gone up by 30% to 50%. And there had been a manpower crunch as workers cannot come into the country to work.

You will have to be prepared for such situations.

2. Once you sell, you forego the future upside

This is the key reason why I generally don’t like to flip, unless I want the immediate cash flow. That said, you can also get cash flow from rentals.

Generally, if you fix and flip properties, you’re totally missing out on the future upside. I’ll share the latest insights on how much property prices have appreciated over the years, in a section below.

3. Contractor can take the bulk of profit, leaving you with very little.

If you are not a contractor nor have a team working for you, the bulk of the profits made usually doesn’t go back to you.

If you’re the one putting in most of the capital, then your own capital will be at risk. Most third-party contractors just want to earn their fees, they don’t care about the final value of the property.

In cases where your costings are not accurate, your portion of the profits could be wiped out by fees if you are not able to flip the final property for a good margin.

4. Not tax effective

Once you sell the property, you’ll incur capital gains taxed and/or corporate taxes, in most countries, including Singapore.

Comparatively, with the BRRRR strategy, you will only incur taxes on your rental profits and eventually when you pass on, inheritance taxes. However, if you keep refinancing to the very end there is hardly any capital gains or no capital gains tax.

Buy and Hold Project in Birmingham: 63.7% ROI

Here’s a Buy and Hold project that we did pretty much in the depth of COVID last year as well. My team bought a semi-detach property in Birmingham on 17 November 2020 below market price at £286,000. After refurbishment, the valuation came up to £360,000 and the final ROI after cost was 63.7%.

Here’re the numbers, I walk through them in this video too.

Although 63.7% returns may not be as good as the annualised returns from a ‘Fix and Flip’ project, we managed to extract most (~85%) of our capital from the property. This means that once we successfully rent the property out, we could break even and start earning a good return (and cash flow) comfortably.

Here’s a summary of the differences between ‘Fix and Flip’ vs ‘Buy and Hold’ property investing strategies:

Fix and Flip vs Buy and Hold

And now, let’s address the elephant in the room:

Can you still flip properties in Singapore?

Flipping properties used to be highly profitable in Singapore.

In fact, it was often done by contractors, 15 to 20 years ago. Back then, a terrace house could be bought for as little as S$800k to S$900k. They could spend between S$300k to S$400k to refurbish it before flipping between S$1.5m to S$1.8m, pocketing a good profit.

But my view is that it is not as accessible today, especially for regular folks like you and me.

Let’s take a look at the table I extracted the following from an article. You would notice that currently, landed property has a slightly lower average price per square foot as compared to condominiums in Singapore.

Upside of Landed property vs Condominium in Singapore

From the table above, However, I believe that the per square foot price of landed property will climb up and even that of the condominiums.

Why?

Because of simple supply and demand.

There won’t be more supply of landed properties. The only way to increase the supply of landed properties is to subdivide and make them smaller. Hence, bigger size landed properties like detached or semi-detached bungalows and good class bungalows (GCBs) are getting rarer.

Comparatively, condos have an unlimited supply. Developers can en bloc existing ones and build newer, taller ones.

So, it is inevitable for landed property prices to appreciate faster, over time.

And the trends on Singapore’s property index seem to support this view:

The price index for landed property (in orange) was 98.9 in 1Q 2000. Fast forward 21 years later, it is at 184.8 as of 2Q 2021. Landed property has undergone an appreciation of 4.5% per year in the past 21 years (overall 86.9% increase).

Comparatively, the price index for non-landed properties i.e. apartments and condos (in blue) was 100.7 in 1Q 2000. Fast forward 21 years later, it is at 158.8 as of 2Q 2021. Non-landed property has undergone an appreciation of 2.3% per year in the past 21 years (overall 57.7% increase).

At the point of writing, the ratio of house (aka landed property) to apartment is in Singapore is 2.84x. In 2000, the ratio was only 2.4x. The increase in the supply of apartments has caused it to lag behind in capital appreciation, compared to landed properties. And, this gap is likely to increase as landed properties become rarer.

Profitable ‘Fix and Flip’ is too expensive for most property investors

Let’s face it, land is scarce and this will cause land value to appreciate while building value to depreciate.

As landed property prices inch upwards, the ‘Fix and Flip’ strategy will become more difficult for smaller investors to execute.

Based on the pricing table above, you’ll need a capital of at least S$3 million for a terraced house. And to sub-divide efficiently and profitably, you probably need to invest in a Semi-detached (which you could sub-divide into terraces).

Taking refurbishment costs into consideration, you would need about S$6 million worth of capital to ‘Fix and Flip’ profitably in Singapore. And that is a very difficult proposition for most of us.

Global Housing Price Trends: and how smart property investors find opportunities overseas

This leads to the following questions:

• are the house to apartment ratios increasing in other cities and countries as well?
• do houses appreciate at a faster rate than apartments across the globe,
• or is it a phenomenon limited to Singapore?

Let’s take a look at how housing prices have appreciated across the globe. (p.s. I tried to get comprehensive data however do note that most data available across countries were not taken from the same period!)

As you can see the trend is happening all over the world. House to apartment ratios are creeping up everywhere.

And this is good news for aspiring property investors! If you’ve missed the boat in Singapore, or find Singapore’s property too expensive to invest in, you could look for properties overseas where the ratios are still low and where property values have a higher ceiling potential to appreciate.

Based on the table above, you could consider New York or Auckland and even London, Manchester, Birmingham, where the ratios are still very low right now, compared to Singapore’s.

Why houses will outperform apartments across the globe, in next decade

Truth is, house to apartment ratios will only go up from hereon. Here’re 4 reasons why:

1. Underbuilding of residential homes in developed countries with strict planning controls.

The thing about developed countries is that they do not allow you to build tall buildings because it destroys the skyline. And everybody wants to see the sky, instead of having to stare at their neighbour’s windows.

Hence, land in developed countries will have height restrictions. Such restrictions preserve the heritage, history and skyline of the city while preventing overbuilding. With lesser supply, the value of houses will increase over time.

2. Protection of green belts.

This is evident in major cities like Hong Kong and London where green belts are treasured. Parks and green belts are protected and developers are not allowed to build more buildings in these areas.

This prevents the city from becoming an urban jungle but also reduces possible land supply. Hence, developers can only choose to build more apartments instead of houses. As houses get rarer, their value will appreciate over time.

3. Urban sprawl is bad for the environment, and travel time.

Some cities like Melbourne allow urban sprawl where there are a lot of land and house packages up north. However, this would mean that people have to spend more time travelling, leading to major traffic jams as people travel to and fro for work.

Personally, I wouldn’t touch land in house packages because they are often sold in phases. I’ve experienced projects where although the developer markets a capital appreciation when the next phrase opens up, this isn’t usually the case. They merely mark prices up to a higher value and you would end up having a hard time trying to sell it for a profit.

4. Money flows into assets with limited supply

The rich are parking their money in what’s rare – landed properties, wine, Bitcoin, etc. Hence, landed properties and residential buildings with high land content are appreciating much faster than those with an unlimited supply

Conclusion

I’ve shared the pros and cons of flipping properties and why I think ‘Buy and Hold’ is a more accessible and easier property investing strategy for most aspiring investors.

In a nutshell:

1. ‘Fix and Flip’ was highly profitable in Singapore in the 1990s and early 2000s but the barrier of entry is too high for most property investors today.
2. ‘Fix and Flip’ requires the property investor to accurately control their costs and projected returns. This works better on an up-cycle.
3. Flipping is still good for cashflow. Successful Fix and Flip property projects could make you $50k to 100k per flip or 25 – 50% profit.
4. Buy and Hold is more tax effective, and investors are able to generate inter-generational wealth.
5. You need to choose properties with a strong chance of capital appreciation and positive cashflow when you leverage.
6. Buy what’s rare. Look for houses in overseas markets where the house price to apartment ratios are still below 1.5x before they creep up to 2.5x or higher.

I’m not a multi-millionaire nor an ultra-high net worth investor and would rather not lose my profits to taxes when I flip a property.

Hence, I prefer to Buy and Hold houses which can be more tax effective and allow me to generate intergenerational wealth. That said, you’ll need to choose properties with a strong chance of capital appreciation, and always strive to remain cash-flow positive. This boils down to your choice of property, location and country to invest in. I would look for markets where the house price to apartment ratios are still below 1.5.