The buy and hold real estate investing strategy is one of the most popular ways for
investors to create passive income. It’s a known recipe for amassing wealth and is
an excellent inflation hedge. Buying and holding property also provides tax
advantages that can be beneficial to investors. Whether you’re just starting out or a
seasoned investor, the right rental property can boost your portfolio and add value
to your overall financial picture.
To understand how buy and hold real estate works, it’s important to know the
difference between short term and long term buy and hold (LTBH). Short term buy
and holds are properties that you plan on renovating, improving cash flow and
selling within 5 years. This is a faster approach than long term buy and hold (LTBH)
which involves buying a property that has good cash flow and focusing on
improvements that will increase your return on investment over time.
When you choose to use the LTBH approach, you’re committed to buying and
holding a property for an extended period of time, often 10 or more years. While it
takes more patience than flipping, the LTBH approach can be very lucrative over the
long run and is much less volatile than other investment options.
The biggest benefit of the LTBH approach is that property values typically rise over
time due to supply and demand. This means that your equity will grow as you
continue to pay down your mortgage and your tenants’ rents. When you’re ready to
sell, you can count on your property’s value increasing at least as fast as the
inflation rate and potentially more.
Another benefit of the LTBH approach is that your property taxes are depreciated as
you own the property, which can help reduce your tax burden. This is one of the
many reasons why a majority of high net worth investors allocate a portion of their
wealth to buy and hold real estate.
One of the risks of a buy and hold property is that it may sit empty for months or
even years, which can reduce your cash flow and increase expenses. This is why it’s
crucial to purchase a property that has good demand and can be filled by qualified
tenants. You can find properties with demand by identifying areas that have
population growth and high home appreciation rates. Also read https://freehomeoffer.com/
Purchasing and operating a buy and hold property can be challenging for those who
aren’t prepared to deal with the legal, maintenance and management
responsibilities of being a landlord. You’ll need to be patient, have good negotiation
skills and a solid understanding of market trends. Fortunately, there are a variety of
strategies available to make this investment strategy work for you. For example, you
can invest in turnkey properties that have a property management company
overseeing operations and attracting quality tenants. Or, you can opt for a multifamily
investment that requires a higher upfront cost but offers multiple streams of
income each month.
