A buy and hold real estate investment strategy is the process of purchasing a property with the intention of holding it for a long period of time. What makes this strategy the most popular one among real estate investors is the double potential of making money through rental income and natural appreciation. In this blog, we will show you how to find the best investment properties for a buy and hold strategy using real estate investing tools from Mashvisor.
What Are the Best Properties for the Buy and Hold Real Estate Investment Strategy?
When it comes to owning a rental property, a real estate investor should focus on two main things. First, how much rental income can you make out of the rental property? This can be found with a cash flow analysis. The aim here is to determine the net cash flow after deducting all expenses from the gross rental income.
Positive cash flow properties are one of the simplest ways of making money in real estate. The higher the net positive cash flow, the better the performance of an investment property is. However, since cash flow is only a number and not a ratio, it is difficult to say what a good cash flow for rental properties is exactly.
Related: How to Buy and Hold Real Estate Property
Second, the best properties for a buy and hold real estate strategy are those that appreciate in value over the years. Typical real estate appreciation for a buy and hold rental property is between 3 and 5 percent yearly. As long as you hold on to the property, you have the option to access the equity of your appreciated property if you opt for a home equity loan. This type of loan allows you to use your real estate property as collateral. So, the higher your rental property appreciates, the more equity you can borrow and the more money you can make when selling the rental property.
How to Find Investment Properties for This Strategy
So the best properties for buy and hold real estate investing are those with both rental potential that can guarantee positive flow and the potential to naturally appreciate over time. To find such properties, you need to analyze the macro- and micro-location, the property itself, and the financial viability of the investment property.
Step #1 Invest in the Right Location
The first step to locate buy and hold properties is to locate the best places to invest in real estate. The location of the buy and hold real estate property influences every aspect of the investment, from the ability to attract tenants, to its ability to generate positive cash flow and a good return on investment.
There are two parts to choosing the best location for a rental property. The first is locating a city with a good real estate market and the second is finding the best neighborhoods in that city. What makes a real estate market good for investing in a rental property is a healthy economy reflected in job growth and population growth. Therefore, a city with a low or decreasing unemployment rate and above average population growth is a good place to invest in a rental property for both cash flow and appreciation.
Related: Top 10 Cities for Buy and Hold Real Estate to Invest in Right Now
Finding the best neighborhoods for a buy and hold real estate investment is just as important as finding the best real estate market, because, inside the same market, investment opportunities can vary from one neighborhood to another. Mashvisor provides real estate investors with an easy way to locate the best neighborhoods. The Mashmeter tool gives a rating for each neighborhood showing how successful a rental property would be in that location. Moreover, the heatmap analysis tool ranks neighborhoods according to their potential rental income, return on investment, and other metrics.
Step #2 Locate the Best Investment Properties
Once you have a location in mind, the next step is to determine what property to purchase. Before you start looking for investment properties, you need to ask yourself what kind of buy and hold real estate property do you want to acquire. Is it a single family rental or a multi family rental? What about turnkey real estate or a vacation rental property? The choice of a property type depends mainly on your investment preferences, your budget, and the location.
No matter which property type you go for, it is always important to carry out an investment property analysis to determine the condition of the rental property and its viability for making a good return on investment. This brings us to our last step.
Related: How to Make Money with Buy and Hold Real Estate Investment Properties
Step #3 Ensure That the Investment Property Makes Financial Sense
Appreciation occurs naturally, as long as you have chosen a good location. So investing in buy and hold real estate means that you have to keep an eye on the real estate metrics to ensure a positive cash flow investment until significant appreciation occurs. For that, you need to carry out calculations to determine the return on investment.
The best return on investment ratio is the cash on cash return, which is calculated by dividing the net cash flow by the amount of cash invested. But how do you calculate return on investment for a property that you do not own yet? Mashvisor offers an outstanding solution for this: the real estate investment calculator. This is a tool that has rental income and expenses for every property on the platform based on thousands of data entries. Using a special algorithm developed by Masvhisor, it calculates metrics such as cap rate, cash on cash return, and cash flow for rental properties.
The Bottom Line
Buy and hold real estate is the ultimate property investment strategy for obvious reasons. Besides the steady cash flow and real estate appreciation, other benefits include tax benefits and home equity build up. At Mashvisor, we aim to help you in every step of the way, from showing you how to find investment properties, to providing you with the best real estate investing tools.
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