Thinking of purchasing real estate investments? Do you know what kind of strategy you will need to follow? There are many different strategies available for real estate investors to choose from. The highlight of the list is without a doubt buy and hold real estate. Buy and hold real estate is a form of long-term real estate investing that pays off in the future. The whole concept behind it is purchasing investment properties that have the potential to give major returns on investment in the form of value appreciation. Nevertheless, purchasing a buy and hold real estate property means that efforts will need to be exerted over longer time periods in order to ensure its success.
There are two aspects of long-term property investments that the owner will need to be taking care of. First is the ability to buy or finance the purchase of the property through cash payments or lending. The other aspect is holding or maintaining the real estate property by renting it out and repairing any damages that arise from the tenants. It might sound too simple, but it requires a little bit of effort at first. The keys to the success of buy and hold real estate properties are future value estimation of the property. The value of investment properties in the long term will depend mostly on the events unfolding in the area, the location, and the economy.
Advantages of Buy and Hold Real Estate
Income: Probably the most lucrative feature of buy and hold real estate is its ability to generate income on two fronts: long-term and short-term. The short-term income can be made in the form of rental income because you own a rental property for the foreseeable future. In the long term it’s about the rising selling value of that same investment property through real estate appreciation.
Related: How passive is your rental income?
Tax Deductions: Buy and hold real estate properties are exempt from some taxes that are normally incurred. The IRS allows real estate investors to write off the value of any property over almost a 30-year period, which allows investors to use depreciation values as negative income to get tax deductions.
Equity: If you are purchasing an investment property by lending money or applying for a mortgage, then buy and hold real estate allows you to pay off those debts with ease. In the concept of rental income, real estate investors have the ability to comfortably pay for the interest of loans and the loan itself. This gives real estate investors an opportunity to pay off the entire debt after a certain amount of years, while still having a real estate property in their name after that.
Appreciation: Real estate is considered one of the safest investments globally because of the high demand for properties and the highly increasing populations around the world. In the US it’s no different, with immigration rising and healthcare improving, making populations bigger. Buy and hold real estate properties can easily appreciate in value depending on their condition, location, and the surrounding economy. The appreciation value can in some areas rise to double or triple its value after 20-25 years, making the investment extremely profitable for the investors.
Leverage: Leverage in buy and hold real estate comes from the fact that you don’t need to have saved up so much money to become a real estate investor. Mortgages can cover up to 80% of the price of the investment property while still giving you 100% control of the property and its future plans.
How to Buy and Hold Real Estate Property
Acquiring a Property
The difference between the buy and hold real estate strategy and the rest is that there is no immediate or incoming profit that allows you to calculate if your investment was good or not. You would be purchasing a real estate property based on futuristic values that are undetermined right now. However, this doesn’t mean that you shouldn’t be going for the best deals when acquiring a property. Making poor real estate investments is not justified any future profit that can be made. When it comes to real estate investments, you should always find the best deals to maximize profit returns in the future.
Location is without a doubt the most important factor in determining the future profit that will be made from your real estate investment. When searching for investment properties, always be sure to ask around the neighborhood or area to know if it is well reputable and if it has a future. Some real estate investors go as far as asking the city’s town hall about community plans for certain neighborhoods because that gives an indication of the expected development of the area in the future. Of course, it is always possible to invest in the best neighborhood out there, but that can be risky because the value of properties there might have reached its maximum potential already. Smart real estate investors usually try to invest in up-and-coming neighborhoods that house real estate properties for cheaper.
Rent Increases Value
A buy and hold real estate property should be rented out. Having one and not renting it out is a loss for the real estate investor in terms of cash flow and property valuation. An investment property that is rented out and in demand will always have more appeal to those who see it. Having tenants living there also keeps the rental property in use and not aging, as they say. When there are tenants, it’s easy to detect maintenance and repairs that need to be done before they cost you too much money after turning into major problems.
The best part of renting the investment property though is constant improvement. When you are renting out your property, you always want to make it presentable and renovated so that it stands out amongst other rental properties. Renting the property and depending on the cash flow will keep the real estate investor on the front foot all the time to keep the property running and functional for many years. The more time that passes, the more developments and creativity will be needed to keep up with the market. This helps increase the overall value of the property for long-term sale possibilities.
Related: How to Value an Investment Property
Buy and hold real estate investments can never be a short-term solution for those real estate investors who are looking for instant major profit. It is a long-term investment that will require patience, a basic understanding of the housing market, and the ability to manage an investment property for years to keep its value on the rise. Buy and hold real estate is by far the safest strategy in the real estate investing business due to the state of the economy and the constant need for rental properties. Its success however depends on your preparedness to maintain it.