High rental income in a prime location and an appreciating asset in a growinghousing market are two major reasons why buy and holdstrategy is the best strategy in real estate investing.Many real estate investors recognize the benefits of a buy and hold strategy and go ahead and search for positive cash flow properties on websites like Mashvisor to kick start their real estate investing business. Not only do you gain financial security in the form of steady cash flow, but you become your own boss and real estate becomes your business with many perks, including but not limited to the tax advantages.
Whether you are a novice real estate investor or one with lots of previous experience, the buy and hold strategy will always make sense, if chosen in a strategic location with proper due diligence. Conducting proper due diligence mitigates the risk of incurring unexpected expenses which might hinder your profit potential in the long run.
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Buy and Hold Real Estate Investing Is a Long-Term Strategy
Simply put, buy and hold strategy is when real estate investors buy a rental property, i.e., a single family home, a multi family home, or a condo, in order to rent it out to tenants and make money in the form of rental income every month. Thebuy and holdstrategy is the conventional real estate investing path and one that comes with minimal risk for investors, given positive housing market trends.
The Advantages of the Buy and Hold Strategy in Real Estate Investing
1. Appreciation
In a nutshell, appreciation is an increase in the value of an asset over time. If you buy a rental property in a prime location, the real estate property’s worth is bound to increase over time, if all else is equal. Land is a great example of an appreciating asset because it has an indefinite useful life and it will always be in demand. Likewise, real estate and stocks are appreciating assets and will be worth more in the future than at the time of purchase. Depreciating assets include cars and computers because they have a finite useful life and eventually decline in value and performance. In simple words, the buy and hold strategy allows real estate investors to make money from their investment properties in the long term.
2. Tax Perks
Like business owners, real estate investors are granted tax advantages for buying and selling real estate. For one, you can write off the cost of depreciation from your tax savings and in turn save money from your rental property ownership. In other words, you can shield your income potential from certain expenses incurred for growing and managing your real estate business.
Expense deductibles in thebuy and hold strategyinclude but are not limited to:
- Depreciation
- Mortgage loan interest
- Maintenance and repair expenses
- Legal and accounting expenses
- Educational expenses related to real estate investments
- Travelling expenses for repairing and managing rental properties
- Property taxes
3. Steady Income
The best perk of all in the buy and hold strategy is the steady (and passive) rental income whichlandlords receive on a monthly basis as a result of renting out their properties to tenants. Selecting the right tenants is crucial to maintaining a stable source of rental income from your real estate business. Maintaining good relationships with your tenants is another crucial point to keep your tenants happy for a long time. Choose ‘em wisely, folks.
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4. Financed and Leveraged
The buy and hold strategy in real estate investing does not mean exhausting your savings funds to get into the business; on the contrary, getting a 20% down payment on the house is the only hurdle to buying a rental property and getting the ball rolling. Financing your investment property with a mortgage loan on the house not only gives you high leverage, but it also allows you to build up your home equity and gain 100% home ownership down the line.
5. A Hedge against Inflation
The housing market is positively correlated with inflation; if general prices go up, so will the cost of housing. Owning real estatethrough the buy and hold strategy is a great hedge against inflation and a way to protect your wealth during such times.
6. LongTerm Financial Security
As previously mentioned, the buy and hold strategyin real estate investing is a long term one and it has the profit potential to secure your retirement funds and be a stable source of rental income for many years to come. Real estate investors can accumulate wealth over time by owning numerous real estate properties and thus reap financial rewards in the long term. Real estate gives investors the financial independence and security to live a comfortable life and enjoy a happy retirement.
Real Estate Will Always Be the Ideal Investment
If you are wondering if the buy and hold strategy is for you, consider it so and don’t look back. Not only is this a safe and risk free investment, but it is also ageless because you can hold a real estate property for a long time and reap the rental income until you decide to sell it for a big profit. Of course, by the time you decide to sell, appreciation will be on your side and the value of the rental property will have skyrocketed and will make you rich.
Getting a mortgage is the best way to finance a rental property for many real estate investors because it is affordable and relatively easy to obtain. With a 20% down payment out of your own pocket, you increase your home equity and get the benefit of owning the whole real estate property. If you have enough equity, you can leverage another loan against the value of the rental property you actually own.
So, in basic terms, you are able to control 100% of the investment with as little as 20% of the value paid out of your own pocket. A portion of the rental income you receive from your tenants will go towards paying off the mortgage loan, simultaneously increasing your home equity each month. You now owe less and have more equity built up on your investment. Win-win!
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Conclusion
Investing in buy and hold real estate is a great investment strategy for anyone looking to build wealth and gain financial security in the long run. Financing a rental property is not only affordable and accessible (given you have a good credit score), but it is also cost effective. Mortgage is the best way to finance a rental property because you avoid the need to exhaust your savings funds to pay for the house from the get go.
Head over to Mashvisor to kick start your real estate business now!
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