Buy-and-Hold Real Estate Investing. A Secret to Long-Term Wealth?
Whether you're into flipping houses like a pro or managing rental properties like a boss, there's a real estate investment strategy that's perfect for you. And guess what? Buy-and-hold real estate is the best way to achieve both short-term gains and long-term appreciation.
With this real estate investment strategy, the possibilities are endless. So, are you ready to invest in buy-and-hold real estate and explore all its hidden treasures? Let's dive in!
What is a buy-and-hold real estate strategy?
Why buy-and-hold real estate? It's a cool way to mix things up in your real estate investment portfolio. Here's how it works — you buy a property, and instead of flipping it right away, you hold onto it for a while. The goal is to sell it eventually, but you're renting it out to generate some income for now.
The plan is to hold onto this real estate investment property for at least five years or more. During that time, you benefit in a couple of ways.
First, you're earning recurring passive income from long-term tenants. And second, you're holding onto the property to take advantage of long-term real estate appreciation. Pretty cool, right?
Types of buy-and-hold real estate
Are you curious about the different types of properties you can use for a buy-and-hold strategy? Let's go over some examples!
Vacation rentals
First up, we have vacation rentals. This involves buying and renting a property to vacationers for passive income. You can also enjoy using the vacation home for yourself. Over time, the property will (hopefully) appreciate, and when the time is right, you can sell it for a profit and keep expanding your portfolio.
Single-family rentals (SFR)
Next, we have single-family homes. This involves buying a property and renting it out to long-term tenants. It's a bit easier than owning a vacation rental or multi-family unit because you're dealing with only one tenant or family.
Turnkey rentals
Another option is turnkey real estate, where you invest in move-in-ready homes that already have a property management company taking care of them. You can connect with a turnkey provider to find properties that require little work on your part.
Multi-family buildings
If you're ready to expand your portfolio even more, consider investing in multi-family buildings. These require a higher upfront cost, but you'll receive multiple streams of income each month.
Commercial real estate
Finally, there's commercial real estate. This investment requires more complex leases, maintenance issues, and higher upfront costs, so it's not typically recommended for beginners. But it could be a very profitable buy-and-hold strategy if you're up for the challenge.
Benefits of buy-and-hold
With a buy-and-hold investment strategy comes a sense of stability and security. Once you find the right buy-and-hold property, get reliable tenants, and hire a good property management team, you can just sit back and enjoy a steady income. Let's look at some benefits of a buy-and-hold strategy.
Tax deductions
As a property owner/landlord, you have many maintenance expenses, but many of them are tax-deductible, such as depreciation, mortgage interest, and loan fees. You can even write off the little things like the pen and paper you use to take notes or your laptop for communicating with tenants.
Equity
When you own a property and rent it out long-term, your renters pay down your mortgage significantly. Sometimes, the rent can even cover the interest on your mortgage. That’s why finding high-quality tenants who pay rent on time is crucial.
Appreciation
Appreciation is the increase in value of your property over time. Holding onto a property for the long term allows you to wait until demand is higher than supply and the home value shoots up. Dramatic market fluctuations won’t scare you if you know you’re holding onto the property for the long term. While there’s no set formula for buy-and-hold appreciation, you can typically expect an annual rate of 3 to 5% appreciation for this type of residential real estate.
Discover if buy-and-hold is right for you
Still not sure if the buy-and-hold strategy is right for you? Well, here are a few things to consider.
You're ready to make a change
First, are you ready to make a change in your life? Buy-and-hold can be a great investment strategy if you want to make more money with less effort and have more flexibility and monthly income.
You're interested in diversifying your portfolio
Second, do you want to diversify your portfolio? With a buy-and-hold property, you can diversify your investments and make money over the long term. You can even diversify further within the strategy by investing in different types of properties like single-family homes or commercial properties.
You have retirement on the brain
Finally, are you thinking about retirement? Buy-and-hold real estate can be a smart and profitable investment strategy for retirees. By purchasing a property, finding qualified tenants, and either managing it yourself or hiring a property management company, you can continue to generate income even after you stop working.
How to buy-and-hold real estate in 8 steps
So, you want to know how to buy and hold real estate? Great! Here are 8 easy steps to get you started:
Step 1
Do some research on neighborhoods that have a growing population, job growth, and market affordability. Properties in areas with a price-to-rent ratio of over 16% and strong real estate appreciation rates of over 5% tend to be a good fit for buy-and-hold real estate investors.
Step 2
After researching the area and finding a neighborhood, it’s time to decide what type of property is best for your goals. Since you plan not to fix and flip this home, you’ll probably want a property already in good condition.
While turnkey properties require the least work, you should be looking for properties that are as close to move-in ready as possible. Of course, the nicer the home and the nicer the area, the more you’ll be able to charge for rent, the better the chances for consistent application, and the more money you’ll make.
Step 3
Don’t make an investment decision based on emotions. Analyze the data, compare properties, and make a decision based on the facts. The right buy-and-hold property will generate positive cash flow and maximize your ROI.
Step 4
When investing in a property, it is essential to plan for financing options that suit your budget and investment goals. Depending on your financial situation and investment strategy, there are various options to consider, including traditional loans, private lenders, or hard money loans.
When selecting a financing option, it is crucial to carefully evaluate the interest rates, loan terms, and repayment periods. Hard money DSCR rental loans have become popular for buy-and-hold investors as they are typically secured by the rental property and offer fast approvals, flexible repayment terms, and reasonable interest rates.
Step 5
Compare similar properties in the area to determine their market value. This will give you a better idea of what a fair price for the property is. Once you have done your research, you can negotiate with the other party to arrive at a price acceptable to both parties. Negotiating a fair price is crucial in ensuring the buyer and seller are both satisfied with the transaction's outcome.
Step 6
Making the decision to work with a real estate agent or not is an important step in the home-buying process. While an agent can provide valuable expertise and guidance, working on your own can save you money on commissions. It's important to carefully consider your needs and resources before making a decision.
Step 7
When deciding whether to manage a property yourself or hire a property manager, it's important to consider the level of involvement you want in the day-to-day operations. If you have the time, expertise, and resources to manage the property, you can save money on management fees and maintain more control over the property. On the other hand, hiring a property manager can save you time and provide expertise in areas such as tenant screening, lease agreements, and property maintenance.
Step 8
Find high-quality tenants. To do so, it's important to market your property effectively. Posting rental listings on rental websites such as Zillow, Apartments.com, and Craigslist can help attract potential renters. Additionally, sharing the listing on social media, and local bulletin boards and placing a "For Rent" sign in the yard can also help spread the word about the available property.
Final thoughts
So, you're interested in buy-and-hold real estate investing? That's awesome!
It can be a bit hectic sometimes, but it's worth it if you do it right. Whether you're already a seasoned pro or a total newbie, investing in buy-and-hold real estate is a fantastic way to grow your property collection and earn cash. It's not without its challenges, but its also fulfilling and rewarding!