Buy and Hold Real Estate
Buy and hold is one of the most popular ways people invest in real estate. In buy and hold, real estate investors generate rental income through leasing single-family homes and other rental properties to tenants. Today, we’re going to share some info about buy and hold real estate investments.
All About Buy and Hold Real Estate Investing
Buy and hold real estate involves buying an investment property and renting it with the intention of selling it in the future. This investment strategy is usually the most effective when the investor plays the long game, rooting for long-term growth. It’s one of the simplest real estate investment strategies and therefore a common route for new investors to take.
Benefits of Buy and Hold Real Estate
Here are a few benefits that buy and hold investors reap when they hold property for an advantageous amount of time.
1. Short-Term Cash Flow
While you don’t get a large lump sum as with a flip, you collect rent checks monthly that can pay off the property’s mortgage and fund other investments.
2. Long-Term Gains
Historically, home values have appreciated, so you can make a confident bet that if you rent a property for an extended period, it can grow in value. Even if its property value remains flat or grows marginally, market value for rent has trended upward nationwide. This results in long-term profit growth.
3. Income That Grows with The Cost of Living
While pensions and social security stay at fixed rates, rental prices have consistently trended upwards to keep up with inflation and market values. While other regular retirement income streams gradually lose touch with the rising cost of living, income from rentals rises with the economy. It can be your key to maintaining the same quality of life well into your golden years.
4. Someone Else Pays Your Property’s Mortgage
Most investors don’t begin their venture with a large cache of cash. If you acquire your first investments through mortgages, renting them to others streamlines your path to having paid off properties – but you aren’t paying the mortgage.
5. Real Estate Tax Write-Offs
There are some lucrative tax benefits and write-offs associated with buy and hold rental properties. As the property owner, you can write off expenses like maintenance, mortgage interest, depreciation, property tax, property management fees, and much more.
6. Passive Income
If you don’t manage your rentals actively and hire property management services to handle day-to-day tasks, this makes rental income generation more passive. Depending on where you live and the laws regulating your rentals, you can be eligible for some extra tax breaks when you have passive income. Check with a tax pro for more details.
These are some of the main financial benefits to buy and hold real estate. While it can be a lot of work on your own, you can sit back and relax when a property management company takes over all the work. This includes tenant management, property maintenance, and administrative tasks.
How to Profit with a Buy and Hold Real Estate Portfolio
Every real estate property is unique. Its profitability depends on many factors such as its location, price, building type, zoning, condition, upkeep, occupancy rate, and much more.
It should be your goal to ensure that you achieve a good return on investment for your efforts. This simple rental property calculator can give you a general idea of what price you need to set to profit and the period of time you should hold it before selling.
Typical expenses may include down payments, mortgage payments, taxes, insurance fees, maintenance costs, and routine services. It’s important to take the proper precautions to ensure profits before you lease to renters.
Tips to Maximize Profit and Reduce Risk with Buy and Hold Investment Properties
If you are a beginner at buy and hold, you should definitely seek the guidance of various professionals like your real estate agent, a financial advisor, tax pro, and have reliable trades on your side. With this support, you can grow your business and thrive while holding property investments.
1. Hire a property manager.
A property manager will stay on top of rent collection, screen resident applicants, respond to maintenance requests, send contractors to resolve work orders, and much more. Having a real estate professional taking care of these important tasks will ensure that you get qualified residents. Proper precautions such as security deposit collection, inspections, and thorough communication with the residents are also in play to ensure that your investment is protected.
2. Make sure the numbers work before you buy.
Whether you pay in cash or through a mortgage, you must ensure that the income exceeds your expenses. This is easier to achieve without a mortgage, but it’s still possible to meet investment goals off a mortgaged investment.
For mortgaged properties, the longer you hold them, the better since residents pay down the loan. Paid-off properties bring in almost pure profit when it’s time to sell vs. a mortgaged property that still needs part of its loan paid. When it’s time to sell, make sure that the sell price results in a profit.
- Tip: If the property’s market continues to show negative trends, such as declining population, job loss, and high crime, it may be better to sell and cut your losses. There are instances in which declining areas have bounced back though, so discuss these portfolio disposition needs with your real estate agent for more insights.
3. Don’t slack on property maintenance.
Quality investments attract quality residents and can also be listed for a higher price. Residents will choose a property in excellent condition over a similar one that needs a lot of work.
By doing regular upkeep with HVAC servicing, inspections, and routine refreshes of key elements like appliances, paint, and flooring, you can present the best product to your residents. And, when it’s time to sell, these improvements will have accumulated, keeping the value appreciation steady.
4. Diversify your hold times.
Not all buy and hold investments need to be held on to for decades. As you gain experience as an investor, you will start to feel more comfortable in diversifying your hold times. Having a mix of short and long-term investments can help you take advantage of different market conditions.
- Longer holds benefit investors with mortgages: Appreciating property values and a paid down mortgage means plenty of equity to unlock when you sell. You can also cash out with us and get a new build in an emerging market through our guaranteed buyout program.
- Shorter holds benefit investors who pay in cash. This is because there is no mortgage that needs to be paid off. A shorter hold time is also necessary for any investor looking to cut losses if the market isn’t behaving as projected.
5. Go where the demand is.
Knowing your market will ensure that you’re purchasing properties that are likely to be rented. For example, a retail space in a highly desirable downtown area will do better than a vacant unit in the outskirts of town. Modestly priced apartments near plenty of amenities, especially walking-distance conveniences, will get a lot of attention from all types of people.
Examples of Beneficial Buy and Hold Markets
Marketplace Homes partners with builders all around the nation that are developing in emerging and thriving real estate markets. Here are just a few examples of favorable locations to buy and hold real estate.
Phoenix, AZ:
As the nation’s fifth-largest city and one of the best places to live in the West, Phoenix is known for its many career opportunities, outdoor recreation, and vibrant city lifestyle. More job opportunities have made this city a hot spot for growth and real estate investment.
Memphis, TN:
Is a growing city that has seen home values increase by 22.1% over the past year. People continue to flock to this growing city for its job opportunities and excellent quality of life.
Jacksonville, FL:
This gem in America’s panhandle has one of the fastest-growing populations in the country. Its low cost of living makes it an attractive place to anyone looking for a great deal. Not only that, but investors are enjoying positive home appreciation rates that are among the highest in the nation at 17.64% percent.
Explore Buy and Hold Real Estate Strategies
There are many ways to make money through real estate investing. While some investors specialize in buying and flipping, others like to play the long game with buy and hold strategies. Or, you will find plenty of investors who like to do a bit of both. Either method can bring in profits when the right strategies and precautions are in place.
As you can see, buy and hold real estate is an excellent way to invest in properties to create a diverse and profitable portfolio. If you would like to learn more about this strategy and if it’s right for you, our team of real estate agents would be happy to speak one-on-one with you. Contact us today to get in touch with an expert.