Owning an investment property can be messy and difficult without an understanding of what is to come. This does not have to be the case for you. With the right approach, planning real estate investment strategies can be easy. Finding the right approach for a buy and hold real estate strategy requires guidance from an experienced individual. Here, I will try to give the best guide for buy and hold real estate investing to start you on the right foot.
What is a buy and hold real estate investment? Buy and hold real estate investing is a long term investment strategy for the purpose of making income from rental property. When done correctly, this allows the real estate investor to gain financial freedom.
Here are 9 tips to succeeding with the buy and hold real estate property strategy and how it can make passive income.
Related: Buy and Hold Real Estate Is the Ultimate Investment Strategy: Here’s Why
Finding the Right Neighborhood
The first step to long term investment strategies is choosing the right kind of neighborhood. When deciding on a neighborhood it is important to choose an area with a good rental market and relatively affordable investment properties. The rental market will create a steady flux of potential tenants while the affordable investment properties will decrease your mortgage, thus increasing your monthly rental income.
Financial Comfort
When buying investment property for the sake of buy and hold real estate investment strategies, one must crunch the numbers. It is essential to treat this like a business and know what budget you are working with. A financial advisor and/or banker can be very beneficial to give a better understanding of what you are able to afford. A rental property will have monthly expenses whether it is occupied or not. So be sure that it is within budget.
Reserve Fundings
Staying within budget will make managing the investment property an easier process. However, a reserve fund is recommended to uphold for when the unexpected happens. Buy and hold real estate investing is far from predictable and will have bumps in the road. Setting money aside, as well as accounting for the unexpected is advisable.
Managing Buy and Hold
When looking for the best real estate investment strategies, an investor needs to have an idea of what management style he/she will adopt. There are two main routes: Do it yourself or hire a property management company. A property management company affords you peace of mind and time. However, doing it yourself will bring a larger monthly income.
This brings us to the question that every investor asks before entering the real estate market. How can I make money in real estate through buy and hold real estate investing? Some of these methods are obvious while others require a long term approach to make money.
Related: Real Estate Investing: Should You Go for Long Term or Short Term?
Rental Income
This is the most obvious method of making money in buy and hold real estate investing. Calculating monthly income is tricky. It is partially controlled by the real estate market and by your investment property. Unexpected problems will arise, so it is good to increase the rental income by a percentage of the expected occurrence. For example, if the property is to be vacant for 2 months in the year, account for that loss by adding a percentage of that expected loss to the monthly income.
Tax Deductions
Owning investment properties is beneficial for real estate investors, as they receive tax cuts from owning property. Depreciating amounts of the rental property can be used as a tax benefit. This one is a loophole; everyone knows that buy and hold investment properties appreciate in value as they age. However, if it is treated as a depreciating value, tax benefits can be gained.
Equity Buildup
Long term real estate investment strategies are valuable. They afford the investor to build up his/her equity through benefiting from their tenants. When tenants occupy the rental property, they pay down the real estate property’s mortgage. Thus, increasing the investor’s equity monthly.
Appreciation
Real estate appreciation is one of the most compelling parts of any long term investing strategy. Real estate appreciation is the value increase of a real estate property over time. Every investor understands that real estate is a limited quantity. With the increase of demand in real estate, there will be an increase in price. Therefore, buy and hold strategy allows the property to grow in value in order to make a sizeable profit by the time you exit the business.
Related: When Is Buy and Hold Real Estate the Best Investment Strategy?
Diversification
The buy and hold strategy is the best real estate approach. It affords the real estate investor to diversify his/her portfolio over time. Buy and hold investments can be used to leverage equity in order to buy more real estate property. The diversification of the investment portfolio is a great way for making money in real estate. More real estate properties means more monthly rental income. More monthly rental income means more equity thus further growing your net-worth.
When getting into real estate investing, it is important to consider all the possible real estate strategies. One of these routes is to use the buy and hold method to grow your real estate business. As can be seen, this method is the best and most versatile method for generating a higher income. Many real estate investors agree on the buy and hold method as it generates consistent passive income when done properly. Passive income can be found through more than just real cash, it can be found through tax cuts, equity buildup, and appreciation. The buy and hold method is no different than any other rental property. It requires planning, constant management, and consistent maintenance. Although these sound difficult, there are easier options to real estate investments strategies. However, these strategies are completely situational to the management approach a real estate investor takes.
Here at Mashvisor, we try to put forth all of our ever-growing knowledge to help you succeed in growing your real estate business. We are constantly learning through our own experiences and others. So join us at Mashvisor for all your real estate needs!
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