When it comes to investment strategies in real estate, there are a ton of options. One of the most common tactics, and the strategy I've chosen is Buy and Hold investing.
So, what exactly is the buy and hold strategy?
It's the process of acquiring real estate, to own and profit from by renting it out to tenants. It requires leg-work in selecting a property, financing it, and possibly renovating it. But when managed well, you could see years and years of consistent monthly returns. As long as your monthly rent is more than expenses, you've got yourself cash flow. This strategy is definitely a long-term play and requires patience, but can set you up for a bright future.
1. Monthly Income: each month, any rent that exceeds your expenses provides you with income. Here's the best part: if you have great property management in place, your rental checks could come in without much labor on your part.
2. Equity Buildup: your tenant is paying down your mortgage every month, meaning your equity in the property increases each month. Tenants even pay down your interest, which is tax deductible.
3. Wealth Creation: if you buy in the right market and neighborhood, your property could appreciate every year. The longer you hold the property, the greater the potential for appreciation.
4. No Urgency to Sell: as opposed to house-flipping which requires speed, buy and hold investing is long-term. Why is this a benefit? Well, if there's a market crash that impacts your home value, rents usually stay relatively stable, still bringing in consistent cash flow. This allows you to wait out a crash until market correction. In Buy and Hold, I always tell myself to not think about the overall property value as long as it cash flows. Appreciation is just icing on the cake!
1. Tenant Issues: it's no piece of cake having to deal with tenants. Some tenants can be very high maintenance and require a lot of your time. Without quality property management in place, don't be surprised by random calls at night and late (or missing) rent. Who wants that??
2. Maintenance Issues: no property is maintenance free, especially if you keep it long-term. A new furnace or a new roof become realistic expenses the longer you hold your property. So be sure to set aside a portion of your rent every month to cover capital expenses!
3. Liability: you can be liable for injuries or damage on your property, which can lead to legal action. Obviously, this is true regardless of what real estate investing strategy you choose as the owner of property, but the longer you hold a property, the more likely something could happen.
Buy and Hold real estate investing is just one tactic that investors can choose. What's your strategy of choice? Leave a comment below!