Real estate investment is an enormously varied industry. Different types of properties, countless markets, real estate classes, and strategies are involved. On one hand, this is beneficial because just about anyone can find an approach that works with their financial goals. On the other hand, so much variety can be daunting!

Though strategies can be divided differently, one primary distinction is whether the investment is short-term or long-term. Turnkey real estate investment is buy-and-hold – a long-term method. Something like house-flipping is a short-term strategy.

Here are a few ways short- and long-term real estate investing diverges…and why sticking around for the long haul is worth it!

6 Ways Short- and Long-Term Real Estate Investing Differs

#1 – Investment Goals

Long-term investments typically aim for wealth accumulation and passive income generation over an extended period. There’s more focus on property appreciation and equity building rather than immediate returns.

Short-term investments focus on quick returns and capitalizing on market opportunities, such as buying undervalued properties, flipping houses, and participating in short-term rental markets.

#2 – Holding Period

Long-term investments involve holding properties for several years or decades, allowing time for value appreciation, rental income growth, and potential tax benefits like depreciation. How long an investor keeps a property depends on preference and portfolio adjustments, not market conditions.

Short-term investments mean shorter holding periods, ranging from a few months to a few years. They aim to profit through property resale or short-term rental income rather than building up equity or tax incentives.

#3 – Risk Profile

Long-term investments are considered lower risk due to the potential for property appreciation, steady rental income, and the ability to weather market fluctuations over time. These investments tend to transcend market conditions while hedging against inflation. Though not without risks, the experts consider a long-term approach the safer bet.

Are you managing your risk responsibly as a passive investor? Check out this Due Diligence Checklist for Passive Real Estate Investors! 

Short-term investments carry higher risk due to market volatility, the potential for unexpected expenses during renovations or flips, and reliance on short-term market conditions for profitability.

#4 – Cash Flow vs. Capital Gains

Long-term investments emphasize consistent cash flow from rental income, with the potential for long-term capital gains as properties appreciate in value. They also benefit from unique tax advantages. 

Short-term investments focus more on realizing capital gains through property flips, renovations, or short-term rental income, with less emphasis on long-term cash flow stability. Short-term investors will buy and sell properties many times to see a profit.

#5 – Tax Implications

Long-term investments carry tax advantages like depreciation deductions, capital gains tax deferral through 1031 exchanges, and the ability to offset rental income with expenses. Holding a property for more than a year is also taxed at a lower capital gains tax rate.

Short-term investments face higher tax rates due to short-term capital gains. Because Uncle Sam wants to incentivize buy-and-hold investing, they also have comparatively limited tax benefits. Rental profits may also be taxed like ordinary income.

#6 – Market Timing and Liquidity

Long-term investments rely less on market timing, as long-term investors can ride out market cycles. Because real estate traditionally increases in value over time, either keeping pace with or exceeding inflation, these investors actually benefit from waiting. That said, buy-and-hold real estate offers less liquidity compared to short-term investments.

Short-term investments are highly dependent on market timing and trends. Poor judgment in this regard can cost an investor a lot of money! That said, there’s better liquidity through property flips or short-term rental turnover. Because this strategy requires active monitoring of market conditions, it’s a much more involved investment method. 

Ultimately, the choice between long-term and short-term real estate investment depends on an investor’s goals, risk tolerance, financial resources, and investment strategy. Long-term investments are generally more stable and suitable for passive income generation and wealth building. In contrast, short-term investments can offer quicker returns but have higher risks and market volatility. Some people like to have both in their portfolios! 

Consider these options in terms of active and passive investing, too. Short-term investments demand more investor engagement and know-how. A buy-and-hold, by contrast, can be extremely passive, as with turnkey investing.  

Don’t know which way to go? Talk to your REI Nation advisor today.