When looking to invest in rental properties, there are many strategies to increase passive income. One of these strategies is buy and hold real estate.
Real estate investing is definitely not a one-size-fits-all sort of deal. There are so many different strategies and avenues to explore. For some, buying and flipping houses works well. For others, taking on the role of a landlord and managing properties works best. It comes down to your preferences, your goals (long-term and short-term), and so on.
A buy and hold real estate investing strategy is one that many investors use as their go-to investment strategy. Here’s why.
What is Buy and Hold Real Estate?
Many real estate investors go in with the intention of buying a property and keeping it long-term. It follows that belief that real estate bought today will be worth more years down the road. In other words, the buy and hold real estate strategy gets its name because you buy it and hold onto it in hopes of earning a greater return. It typically follows the following:
- Find the right property
- Finance the property
- Upgrade the property (make it desirable, show value, etc.)
- Rent it to high-quality tenants
- Sell when the time is right (i.e. profitable)
That’s what buy and hold real estate investment can look like in a nutshell.
Getting started in building your investment portfolio can be intimidating and tricky. But it is important to remember that the right strategy for you could differ drastically from the strategy that other investors may have found great success with. So, as we move forward to gain an understanding of buy and hold real estate strategy, just know that it is one of many strategies available — and it may or may not be the best choice for you.
Why Do So Many Investors Prefer the Buy and Hold Real Estate Strategy? The Benefits
The idea in real estate investing is to make money. And when it comes to a buy and hold real estate investment strategy, you get the piece of real estate and you get to generate cash flow for years to come. Over time, you can pay off the mortgage and still continue to generate income without you having to pay out much. You can focus on other investments while still earning.
Many investors love this strategy thanks to all the tax savings. For example, expenses such as property marketing and advertising costs, maintenance costs, HOA fees, mortgage interest, insurance premium costs, utility costs, and more are all tax-deductible.
When a property is purchased, it is safe to assume it will appreciate over time based on the historical data available. The general theory is that a property you purchase today will be valued at a much higher rate down the road. This appreciation could benefit you if you go to sell the property.
Keep in mind that all of these benefits are only valuable if you do your due diligence when purchasing real estate in the first place.
An Investment Strategy’s Shortcomings
There are a lot of great reasons why investors choose buy and hold real estate investment strategy as their go-to, but everything can’t be all good. With all the benefits, there must be a few shortcomings or drawbacks, too. For instance, if you invest in properties and you hold on to them, you are potentially limiting your liquid cash flow. Typically, you can’t just use the cash you have tied up in the asset. While it is not usually a big deal, should you encounter certain emergency situations, this could pose a problem. Especially if refinance is not an option due to high interest rates.
Also, because your money is tied up in real estate, its value will vary based on the health of the market – both for selling and renting. Should the market take a downward turn, you may find the value of your property going with it.
Finally, owning real estate means also having to care for it. So when things go wrong, such as a leaky roof or a leaky toilet, you are going to have to take care of it. Though hiring a property management team to care for and maintain the property regularly may reduce the incidence of expensive repairs.
Knowing When to Sell
You may have an entire portfolio full of buy and hold real estate purchases, but that doesn’t mean you can just shove them aside and hold them forever without ever giving a second glance! Hence why it is not dubbed a buy-and-hold-forever investment strategy. There is a time to sell — and in order to protect yourself, you need to know when that time is.
Selling when the time is right is going to be a personal decision based on your own set of circumstances. However, there are a few factors that may have you considering:
- The state of the market. Keep an eye on the comps. When you see the sale prices going up you may want to consider letting it go.
- Do you see an area or market with better opportunities but need the cash? Consider selling and then reinvesting in that area.
- If property taxes are on the rise, does it make sense to keep the property? Will you still benefit despite the higher taxes?
- If the rental market is slowing down or rental rates are no longer steadily rising, it may be better to sell and reinvest in another location if you choose.
- Maybe you have found you are terrible at dealing with tenants and can’t afford to hire a property manager based on the income the property is producing.
Investors are always looking for the next investment option — and monitoring their current investments. Don’t shove these aside and forget them. Monitor them regularly and make the best decisions for your property.
How a Property Management Team Can Help
Your mind may be focused on buy and hold investment opportunities – and that is exactly where it should be. See, many investors engage in this investment strategy and then find themselves holding all these properties without knowing where to start.
This is where a property management company like Real Property Management Evolve can step in and take over. You continue looking for investments – or do whatever you wish – and your property manager will get your property advertised and rented to high-quality tenants, handle any maintenance and repair, rent collection, and so much more.
Property managers are experts in managing rental properties. So as you are buying and holding property, you can rest easy knowing that in that holding phase, you are maintaining low vacancy rates and a healthy passive income. It just makes sense for your investment.