For novice investors starting out, buy and hold real estate might be the best go-to strategy to kick start your real estate investing business venture.
To put it in the simplest terms, buy and hold real estate is a long term business plan whereby a real estate investor purchases rental properties for the sole purpose of renting them out to earn passive rental income and accumulate long term appreciation. Long term rental properties are one of the best real estate investment strategies with short term and long term benefits. The pros definitely outweigh the cons, and investing in rental properties is a great way to diversify your real estate investment portfolio as well as to build wealth and financial security in the long term.
The beauty of real estate is that it doesn’t (entirely) require investors to pay out of their own pockets to invest, and there is no set roadmap to success; real estate investors create their own roadmap as they see fit. We do understand it might be a bit overwhelming to start in this business, but the best advice to give you is to start out small and acquire as much relevant real estate knowledge as possible. The more you know, the better equipped you become as a real estate investor to make smarter investment decisions.
Related: The Investment Property Financing Tips That Every Real Estate Investor Needs
The Benefits of Buy and Hold Real Estate
1. Passive Income
Renting out your property to tenants is a good means to earn passive rental income and make money in real estate investing. There is no doubt that the quality of the neighborhood is directly proportionate to how much rent you can charge your tenants. If your rental property is located in a good locations, landlords will get the upper hand and have the leverage to be selective in choosing the tenants as well as setting the rent. On the other hand, purchasing a rental property in low-income neighborhoods will set a different tone for landlords as they might be facing high vacancy rates and lower rental income. Keep in mind, to maintain steady cash flow in buy and hold real estate, the location is a key criterion to make or break your investment.
2. Real Estate Appreciation
Buy and hold real estate grants investors long term appreciation, given all else is equal, i.e.,, the real estate market is in upswing. The short term benefits are great, but accumulating real estate appreciation on the investment property allows you to sell for a much higher price and bigger profit. You have to see the bigger picture and plan for the long term. Of course, the plan is to be selective in the area of choice and be smart when you sell. For one, it is never advised to sell a real estate property during a housing market crash or downturn because you will not be selling for profit and will lose money on your investment in turn.
3. Tax Perks
Just like in any other business, real estate investors are entitled to tax advantages for running their real estate business. Whether it is one rental property or several, you will be able to write off expenses for managing your buy and hold real estate.
4. Safe Investment
Unlike the stock market, investing in real estate is a relatively safe investment and one with much less risk involved. The ROI on buy and hold is definitely worth the small negligible risk investors will incur. We say, go for it.
Related: What to Consider Before Buying a Rental Property
The Drawbacks of Buy and Hold Real Estate
1. Illiquid Investment
With buy and hold real estate, you have an illiquid investment which is not easily converted into cash in the short term. It will take many years to sell your investment property for a profit; selling it sooner will not be advised and you can be incurring a huge loss on your investment.
2. Market Fluctuations
Just like any business, the real estate market is full of instability and market fluctuations. What goes up must come down. If the housing market is in a downturn, real estate prices will plummet. When the real estate market is sunny side up, investors reap the benefits in big ways.
3. High Vacancy Risk
In tandem with the previous point, a downturn in the real estate market conditions could lead to high vacancy and an unstable rental income. To mitigate vacancy risk, make sure you fulfill all your obligations and duties as a landlord to keep your tenants happy and your rental property in tip top shape.
The Beginner’s Guide to Buy and Hold Real Estate
1. Buy and Hold Real Estate in Prime Locations
The holy grail of real estate investing is location, location, location. Choosing positive cash flow properties in good neighborhoods and a prime location will reap you higher rewards in terms of good rental income and high quality tenants. Also, you will be able to manage vacancy risk because your rental property will be in high demand throughout the year.
2. Buy and Hold Positive Cash Flow Properties
The secret to real estate investing is finding positive cash flow properties to safeguard your profits and minimize your risks. Mashvisor allows investors to find positive cash flow properties across the country within a matter of minutes. This is especially good for novice investors with little real estate background.
3. Buy and Hold Real Estate with the Right Financing
You don’t need to exhaust your savings to buy rental property. In fact, it is highly recommended you finance rental property with a bank loan as opposed to paying for it in full in cash. The perks of financing through mortgage include the accumulation of home equity to buy more rental properties as you only pay 20% down payment from your own pocket, and essentially your tenants end up paying off your debt. And, you also improve your credit score with the bank. Not bad!
Related: What’s the Best Way to Grow Your Business in Real Estate Investing?
4. Buy and Hold Real Estate with Stable Tenants
Be very weary about whom you choose to rent out your investment property to. Choosing the wrong tenants can have negative repercussions on your real estate investing business and your wallet. Be very diligent and don’t forget to run background checks.
5. Buy and Hold Real Estate as a Business
Ultimately, real estate investing is a business, and diversifying your real estate investment portfolio is a good strategy to keep in mind in order to maintain financial security and business stability. Treat your tenants well, and keep an eye on investment strategies with positive ROI.
6. Find Buy and Hold Real Estate with Mashvisor
Mashvisor has the tools and analytics to help real estate investors find profitable investments in the quickest time. You don’t need to do any manual work because we have it all prepared for you: from a rental property calculator, through a heat map generator, to full investment property and neighborhood analysis, cost-benefit analysis, and the list goes on. If you are not a member already, we highly recommend you to sign up today to invest smarter and save time. Real estate investors make smarter decisions with Mashvisor’s real time analytical tools and data.
It goes without saying that buy and hold real estate is a sound investment strategy with less risk and high rewards. Real estate investors can reap financial wealth and stability for the long haul if they diversify, select the right tenants, and buy real estate in good and stable neighborhoods. It is about the planning and due diligence you put in that will differentiate the good real estate investments from the bad ones. We cannot emphasize enough the importance of setting a business plan and starting out small.
Head over to Mashvisor for more real estate insight!