An increasing number of people are now deciding to invest in real estate to earn a passive income. This is especially true among young people nowadays who are forced to grapple with ever the ever increasing cost of living and have to think of various ways to generate a passive income.

Real estate is considerably more stable compared to stocks and ensure a more constant flow of cash. Property also tends to appreciate together with time on a more consistent basis. It is also less vulnerable to economic effects, unlike stocks and shares.

In the real estate realm, there are generally two methods by which you can earn an income. The first strategy is called ‘flipping’ and the second strategy is commonly called ‘keeping’. The type of strategy you adopt depends entirely on several factors, most importantly how quick you want cash.

What is ‘flipping’ and ‘keeping’?

The term ‘flipping’ refers to the strategy of buying a piece of property, waiting a short period for its value to increase and then re-selling them at that higher price, earning the difference as a profit. On the other hand, ‘keeping’ a property means you buy a piece of property and earn from it by renting it out.

What are the benefits and downsides of ‘flipping’?

The most obvious benefit of buying a property and reselling it after a short period of time is of course the quick income. A property can be sold within months or at most, a few years after buying once the owner is satisfied that the property has appreciated enough in value. Of course the longer one waits, the higher the appreciation value and the higher the earnings will be.

Another good thing about property flipping is that you won’t have to deal with tenants and long term maintenance costs. However, there is one downside, which is that you will have to pay RPGT (Real Properties Gains Tax) which is a tax levied by the Malaysian government on houses sold less than 5 years after purchase.

Another risk in ‘flipping’ is the fear or property value depreciation, whereby instead of increasing in price, your property devalues instead. Property devaluation can happen if an area is suddenly hit by natural disasters, or maybe a property value bubble bursting. However this is rare and the risk is minimal.

What are the benefits and downsides of ‘keeping’?

The primary benefit of keeping a property is the constant and assured flow of passive income from rentals. If you don’t mind dealing with tenants and paying the maintenance costs then this is the strategy that fits you. Locally, the types of properties that can most easily fetch tenants are apartments and condominiums.

Another benefit from keeping property is that it has a chance to really appreciate in value over a long period of time, usually over several decades, making you wealthier in terms of assets if you ever choose to sell.