One of the beauties of real estate investing is the number of investment strategies available for a real estate investor to choose from. These strategies range from long-term to short-term investment strategies, and each of these approaches falls into a number of sub-strategies. Now, you might be wondering since there are so many strategies, which one is the best? Well, the long answer would be: depends on a number of factors such as the type of investment property, the location, financing, etc. The short answer would be: the buy and hold real estate investment strategy!
The majority of real estate experts agree that this is the ultimate investment strategy for property investors – especially beginners. Keep reading to explore what is buy and hold real estate and why it’s the ultimate investment strategy for property investors.
What Is Buy and Hold Real Estate?
The buy and hold strategy is the most traditional and most common real estate investment strategy. As the name suggests, buy and hold real estate is when a real estate investor buys a rental property for the purpose of investing in it for the long term. In other words, this investment strategy involves buying an investment property and leasing/renting it out for a long time period to make money both in the short term and the long term.
Related: Real Estate Investing: Should You Go for Long Term or Short Term?
Short-term income comes in the form of monthly rent collected from tenants (passive income). To make money from buy and hold real estate rental properties on the long term, the real estate investor simply holds the investment property until it appreciates and then sells it for a higher price than the initial purchase price.
Through this definition, you can see why many property investors consider buy and hold real estate the ultimate investment strategy for long-term investments properties. Let’s explore the benefits which make buy and hold real estate the ultimate investment strategy further in details.
Buy and Hold Real Estate – Steady Cash Flow
The first reason that makes buy and hold real estate the most common investment strategy is the steady cash flow and passive income which these rental properties provide to property investors. When a real estate investor holds an investment property and rents it out to long-term tenants, he/she will collect monthly rent, which serves as a steady income.
Property investors use this monthly rental income to pay off their mortgage. So, technically, when investing in buy and hold real estate rental properties, your tenants are paying down your mortgage each month until you have full ownership of the rental property, which ultimately builds equity in the investment property.
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Keep in mind, however, that selecting the right tenants is crucial to maintaining a steady rental income from your rental property. The best tenants for buy and hold real estate investment properties are those who pay their rent in full each month, who don’t cause major damage to your rental property which requires expensive repairs, and who are willing to rent ut the investment property for the long term.
Buy and Hold Real Estate – Appreciation
As previously mentioned, buy and hold real estate allows for both short-term benefits (cash flow) and long-term benefits (appreciation). In the simplest words, appreciation is the increase in an investment property’s value over time. Like any other market, the real estate investing market has its ups and downs. However, if you buy a rental property in a good location, its value will almost always increase over the long run.
Related: Real Estate Investing for Positive Cash Flow vs. Appreciation
The keyword here is a good location; the best places to invest in buy and hold real estate for the long term are those with high demand for and low supply of investment properties. In these housing markets, rental properties will be worth more in the future than at the time of purchase. And we’re not saying the increase in value will be a slight uptick; it can actually be double (and even triple) the overall value of the investment property! Ultimately, this means buy and hold real estate investing provides property investors with great returns when they decide to sell their investment properties in the future.
Use Mashvisor’s property search engine and investment property calculator to find the best location for real estate investing.
Buy and Hold Real Estate – Tax Benefits
When investing in real estate for the long term, a real estate investor is granted tax advantages in addition to tax deductions that protect his/her income, which leads to making and saving more money. This is another incentive that attracts property investors to the buy and hold real estate investment strategy. Depending on your state and local government regulations, mortgage interest costs and property taxes as well as private mortgage insurance can offer the real estate investor some tax deductions when owning investment properties.
Other expense deductibles in the buy and hold real estate investment strategy include but are not limited to:
- Depreciation
- Maintenance and repair expenses
- Legal and accounting expenses
- Educational expenses related to real estate investments
- Traveling expenses for repairing and managing rental properties
Related: Top Ten Traditional and Airbnb Rental Property Tax Deductions
Buy and Hold Real Estate – Inflation
There is a direct positive relationship between real estate investing and inflation. Inflation happens when there’s an increase in the cost of living. Since rental rates keep pace with inflation, the prices of rental properties will rise when inflation occurs. This is beneficial for property investors for 3 main reasons:
1. Inflation allows property investors to raise how much to charge for rent.
2. The value of the rental property will go up (appreciation) to cover for inflation.
3. Inflation doesn’t affect mortgage payments – they actually decrease as inflation increases.
Therefore, buy and hold real estate investment properties are a great way to protect your wealth at times of inflation.
Buy and Hold Real Estate – The Bottom Line
Buy and hold real estate is the most common investment strategy. The above-mentioned are reasons for the popularity of this approach and points that real estate experts use to prove that this is, in fact, the ultimate investment strategy. Thus, if you’re looking to buy a rental property, we at Mashvisor will help you find the best one which you can invest in for the long term.
Mashvisor provides property investors with the best tools to find and analyze investment properties in the US housing market. Click here to start your search, and don’t forget to sign up for Mashvisor to have our investment property calculator at your reach and join the class of successful real estate investors.
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