This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords. Real estate traders buy properties with the intention of holding them for a short period, often no more than three to four months, whereupon they hope to sell them for a profit. This technique is also called flipping and is based on buying properties that are either significantly undervalued or are in a very hot area.
Pure property flippers will not put any money into a property for improvements; the investment has to have the intrinsic value to turn a profit without alteration, or they won’t consider it. Flipping in this manner is a short-term cash investment.
If a property flipper gets caught in a situation where he or she can’t unload a property, it can be devastating because these investors generally don’t keep enough ready cash to pay the mortgage on a property for the long term. This can lead to continued losses for a real estate trader who is unable to offload the property in a bad market.
A second class of property flipper also exists. These investors make their money by buying cheap or reasonably priced properties and adding value by renovating them. They then sell the property after renovations for a higher price. This can be a longer-term investment, depending on the extent of the improvements. The limiting feature of this investment is that it is time-intensive and often only allows investors to take on one property at a time.