Real Estate Investing: Speculation Versus Long Term Investing

Real estate is a hot investment option right now. Market prices are going up and rental yields look promising. If you are planning to get into real estate investment, you can do it in two ways; speculating on the prices or long-term holding. The former is where you buy property in a promising area and hope to make a quick turn-around. The latter is where you buy and wait to reap your gains years down the line. Both approaches are good but which is best for you? Read on for some insights.

Expected returns

Both speculation and long term ownership can garner good profit returns. In truth, the rate of returns lies largely on the market forces. Luckily, speculation rides on the current upward market trend where you know that prices are likely to keep rising. You can then collect your gain and move on to another project. With long term investing, the bet is that real estate will live to its creed and keep increasing in value over time. However, the market forces may change and your property may fluctuate or dip in price.


In either investment approach, you have to pay taxes for your profit gains. The difference is that as a speculative buyer and seller, you will pay taxes numerous times and this will eat into your profits. As a long term investor, you can enjoy the rise in property value without much bother. This is because you will make your tax payments when you sell. Between the two models, the shortcoming will only be determined by the profit margin. The larger it is, the less you'll feel the tax cut.

Ease of selling

Anytime you sink your money into property for investment purposes, the pressure to sell and recoup your money starts to build. This rings quite true for speculative buying as you will not be intending to keep your cash tied up for long. Should the market change or selling prove difficult, you will be left in a bind. With long term buying, time is not an issue. If you cannot find a buyer, you just wait and hold onto your investment. Even if the market reverses, you can wait for the next bubble and cash in.

Ease of funding

The great thing about speculative investment is that you expect to get your money back shortly, with profit, of course. Putting the money down for a purchase is therefore not as a big a decision as it is with long term investing. You can therefore take higher risks on funding. With long term investing, you can only use funds that you already have. Borrowing is almost impossible because you have no solid repayment time.

In the end it all boils down to how much risk you can stomach. If your risk appetite is high, speculate. If not, buy and wait. For more information, check out companies such as McGrath Real Estate Group.