Zillow's chief economist explains why the party is over for short-term real-estate investing tactics like house-flipping — and says long-term strategies designed to generate cash flow are an investor's best bet right now
With the near-term outlook unfavorable, Olsen said that a buy-and-hold strategy to build up equity in a house by renting it out is a better option than employing short-term strategies. Using this approach, one can look to build up their cash flow over time as rents rise. Plus, when mortgage rates eventually fall, one can refinance into a lower rate, improving an investor's positive cash flow.
For example, in a so-called 2-1 buydown, the seller gives the buyer the amount of money it would take to effectively knock two percentage points off the mortgage in the buyer's first year of owning the property, and one percentage point in the second year. The theory is that by the third year, there's a chance mortgage rates will have dropped, and the buyer can refinance for a lower rate.
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