Investors know that long-term rental properties are great ways to diversify any real estate portfolio. After all, a successful buy-and-hold property can provide short-term gains with long-term appreciation. But what is buy-and-hold real estate investing, and how can investors get started? Read along as we review a simple guide to buy and hold real estate investing for beginners.
Contents of This Article:
- What is Buy and Hold Real Estate Investing?
- Buy and Hold vs. Flipping Properties
- Are Buy and Hold Properties Good Investments?
- Steps to Obtaining a Buy and Hold Property
- How Philadelphia Property Management Can Help
What is Buy and Hold Real Estate Investing?
Buy-and-hold real estate investing is exactly what it sounds like. It’s where an investor buys a property and holds onto it for an extended period of time–anywhere from five to 30 years.
Buy-and-hold investors typically sell their properties later on but rent them out as they pay off loans and take care of property expenses. These properties may include single-family homes, apartments, duplexes, or other multifamily buildings.
Most investors choose the buy-and-hold method since it generally offers long-term gains and short-term cash flow. The property value appreciates over time, while monthly rent payments give investors enough cash flow to pay off the mortgage and earn income.
Buy and Hold vs. Flipping Properties
Buy and hold is one of the most popular real estate investing strategies. However, fix-and-flip properties are another popular investment strategy. Investors who flip properties generally buy them at below-market costs and renovate them to sell quickly for a profit.
Although both of these options are profitable and achievable, it’s essential to recognize the differences while choosing a strategy. For instance, if you purchase a fix-and-flip property, you must account for the time, effort, and money it takes to renovate. Additionally, this strategy results in a sizeable one-time payout compared to consistent monthly income.
Buy-and-hold properties are typically lower risk than fix-and-flip investments. While flipping a property, you must find a reasonable deal, hire reliable contractors, keep pace with your renovation timeline, and eventually sell for a profit. On the other hand, buy-and-hold properties are lower-maintenance and more hands-off.
Ultimately, your decision between the two investment strategies depends on your investment goals, involvement level, and starting capital. So next, let’s go over the advantages and disadvantages of buy-and-hold investment properties.
Are Buy and Hold Properties Good Investments?
Buy-and-hold real estate investing is popular for a reason. After all, the buy-and-hold strategy can provide passive income for investors willing to put in the work. So before you explore the buy-and-hold method, ask yourself a few questions about your investment goals.
For instance, how involved do you want to be in the investment? Additionally, what property type best suits your investment goals? Finally, what does the current market look like? It’s important to answer these questions to determine whether or not a buy-and-hold property is right for you.
Next, take a deeper look at the advantages and disadvantages of buy-and-hold real estate investing.
Advantages of Buy and Hold Properties
- Recurring Monthly Income- One of the most significant benefits of buy-and-hold real estate is stable, recurring monthly income.
- Long-term Property Appreciation- Real estate generally appreciates, or grows in value over time. The longer you hold onto the property, the more it appreciates.
- High Return on Investment- Not only can you earn consistent monthly income, but you can also earn high returns if you sell the property after it appreciates.
- Exceptional Tax Benefits- Buy-and-hold real estate offers several tax benefits that other investments do not. For instance, you can deduct operating expenses like management fees, repairs, property taxes, insurance, etc.
Disadvantages of Buy and Hold Properties
- Illiquid Investment- Any type of real estate takes time to sell compared to other investment assets like stocks.
- Property Management Expenses- If you own several properties or rental units, property management expenses add up.
- Changing Neighborhoods- Neighborhoods change over time, which may affect property prices. One of the significant risks of buy-and-hold properties is that property values can decrease over time.
- Unpredictable Market Cycles- Real estate goes through multiyear cycles, which can affect profits if the market is trending downward.
5 Steps to Obtaining a Buy and Hold Property
If you’re thinking about buy-and-hold real estate investing, it’s crucial to have a business plan in mind. Establishing a plan and goals for your investment can help guide you through the process. Here are five steps to keep in mind while obtaining a buy-and-hold investment property.
- Find a Profitable Investment
- Finance Your Property
- Make Upgrades to the Property
- Find Comprehensive Management
- Plan for Unexpected Circumstances
Find a Profitable Investment
Whether you’re buying a fixer-upper or a buy-and-hold property, you’ll want to find the best possible deal. For instance, if you’re looking for a rehab property, look for deals that can maximize your bottom line. The same goes for buy-and-hold properties since the purchase price determines property expenses.
Additionally, it’s important to recognize that not all properties make good rental homes. Therefore, before making an offer, ensure there’s demand for rental housing in the area.
Finance Your Property
Once you’ve found a good deal in a good location, it’s time to finance your property. A common misconception of buy-and-hold investing is that you can’t use hard money loans to fund a property. However, that’s untrue. You can use traditional bank loans, hard money loans, private money, seller financing, partners, or other financing methods.
Make Upgrades to the Property
You’ll rarely find a perfect turnkey rental property deal. As such, investors must plan for upgrades and renovations, whether they purchase a buy-and-hold property or a fix-and-flip investment. That said, if you want a successful investment property, you have to be willing to put in the work.
Some of the primary renovations to consider include new flooring, repainting, and kitchen and bathroom improvements. After all, just a few simple upgrades can increase your property value and monthly rental income.
Find Comprehensive Management
One of the reasons some investors stray away from buy-and-hold real estate investing is property management. After all, you have to market your properties, screen potential tenants, write up contracts, inspect properties, collect rent payments and fees, and more.
As you can imagine, all of these tasks add up quickly. The best way to avoid an unwanted full-time landlord job is by hiring comprehensive property management in Philadelphia. While the long-term benefits of real estate investments are excellent, running a rental business takes a lot of work.
Plan for Unexpected Circumstances
Rental properties are pretty unpredictable, and things can change at a moment’s notice. In fact, it’s not uncommon to have several great months just to eventually get hit with a few major expenses. As such, it’s important to have decent savings to brace for unexpected circumstances.
Unfortunately, you’ll have to scramble to pay for unexpected expenses without an emergency fund. However, with a healthy amount of savings, you can feel confident about any unexpected expense that pops up.
How Philadelphia Property Management Can Help
Buy-and-hold real estate investing is an excellent option for any investor willing to put in the time and effort. That said, managing several rental units or properties is incredibly time-consuming. So, if you’re looking for comprehensive property management for your buy-and-hold investment, look no further than Bay Property Management Group.
BMG offers full-service property management to landlords near Baltimore, Philadelphia, Northern Virginia, and Washington, DC. Whether you need help with tenant screening, property maintenance, rent collection, and more, contact BMG today.