If you’ve always thought that working hard in a mediocre job is going to get you where you want to be, stop right there! Assuming you’re not one of the very lucky few that manage to get six-figure jobs, you should go on with your life with the simple addition of real estate investing. Real estate investing seems like too big of a commitment for younger generations. Regrettably, they end up settling for small-time jobs and freelance work that can barely support their ongoing expenses. So, how can you break the cycle? All things considered, explore real estate investment strategies that have been proven to work for expert real estate investors. By doing so, you are capitalizing on any opportunity by replicating an investment strategy that has already proven its value. One reliable and safe strategy, ladies and gentlemen, is the buy and hold strategy!
While it may seem vague as a concept, it can be implemented in many methods to fuel your trip on the road to riches. Meanwhile, real estate investors implementing the buy and hold strategy can venture into the many other real estate investment strategies to generate cash flow and reach a high amount of investment properties.
What is the buy and hold strategy?
The name says it all! You are literally buying investment properties and holding onto them until their value goes up. In return, the more you hold onto them, the more value and income you will get through them! The buy and hold strategy holds its valuable place among long-term rental strategies because it’s mainly shielded from market trends and fluctuations. Additionally, real estate investors can implement it on the many shapes and sizes of both commercial and residential real estate.
Why should you utilize the buy and hold strategy?
Building equity
Building equity in real estate is easier said than done. However, for those who do it, it can be a major profit stream in both the long haul and in the near future. To clarify, equity in real estate is the difference between what you owe on the property’s price compared to its current market value. Let’s take an example of buying a property with a down payment of $15,000, then taking a mortgage for the remainder of the property’s price. The $15,000 is your equity in the investment property. The more you pay through mortgage payments, the more equity you will have in that said property. In the buy and hold strategy, you will continue to build equity up until the property’s mortgage is paid in full.
Related: What You Need to Know About Real Estate Equity.
Make use of property appreciation over the years
To grasp the concept of why property appreciation is a necessity for many real estate investment strategies, including the buy and hold strategy, we must know what it involves. Firstly, real estate appreciation means the constant increase of value as time passes. The scarcity of land and properties increases with time. The more and more humans populate the earth, the higher the price your property can fetch!
Appreciation and depreciation are two different things, as real estate investors look at them from completely different angles. Properties appreciate and that’s a fact. On the other hand, buying a property and neglecting to maintain it allows nature to take its toll and you will lose your investment property’s value.
Real estate appreciation is best realized with the buy and hold strategy, as an investment property needs time to significantly increase in value.
Related: How to Calculate Real Estate Appreciation.
Utilize cash flow
Cash flow is what all real estate investors run after! The possibility of having recurring cash flow monthly creates security as a form of passive income. This cash flow is typically generated through rental income. Accordingly, while real estate investors are employing the buy and hold strategy, they are making use of the said rental property as a passive income generating machine. This rental income is the base of your cash flow. No doubt that most real estate investors reinvest this cash flow into the property to maintain it. Additionally, most successful real estate investors have figured a way to buy a property, rent it out, and have the property pay for its recurring expenses through rental income.
Exploit leverage
Real estate investors use leverage by borrowing capital to increase the expected returns of any potential investment. At the same time, financing investment properties can play a major role in leverage. To clarify, let’s take an example:
Property A
Cash = $100,000
Price = $200,000
Annual Appreciation = 3%
Property B
Cash = $100,000
Price = $400,000
Annual appreciation = 6%
With these two hypothetical investment properties, we have the same amount of cash but different price points and estimated appreciation rates. Now, since we have the same amount of cash, making an investment in property A is different than property B. How? Well, if the real estate prices continue to rise as expected, each property will appreciate in value. One more than the other. At the same time, if the real estate prices fell, you will be in danger of losing a big portion of the property’s value.
The idea is that exploiting available leverage involves utilizing smart methods to expand your returns. Furthermore, successful real estate investors rely heavily on investment property analysis to ensure the profitability and find low risk investments. In addition to that, an investment property calculator utilized properly can help you find low risk investments while helping you decide on the most appropriate cash flow channel to use through rental strategies. With Mashvisor’s investment property calculator, you can get all you need through our comprehensive list of analytical tools. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Deduct depreciation
Real estate depreciation is a critical tax strategy that smart real estate investors can make use of. With the buy and hold strategy, you can deduct the price of the property over the course of 27.5 years for residential real estate and 39 years for commercial real estate. In return, this lowers the tax liabilities of the real estate investor while keeping thousands of dollars in his/her pocket.
Related: The Tax Benefits of Real Estate Investments.
The buy and hold strategy is one as old as the real estate investment business itself. Real estate investors have used it in the past with positive cash flow properties, and you can too! Moreover, the earlier you start with this real estate investment strategy, the earlier you can reap the benefits of it. So, start investing today for tomorrow’s financial freedom!
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I am an experienced real estate investment enthusiast with a deep understanding of various strategies employed in the field. My knowledge extends to evidence-backed practices that have proven successful for real estate investors. Now, let's delve into the concepts mentioned in the provided article.
The article discusses the importance of real estate investing, particularly emphasizing the "buy and hold" strategy. Here are the key concepts covered:
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Buy and Hold Strategy:
- Definition: This strategy involves purchasing investment properties and holding onto them for an extended period until their value appreciates.
- Application: The article suggests that this strategy is versatile and can be implemented in various methods for long-term gains.
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Building Equity:
- Definition: Equity in real estate is the difference between the property's price and what you owe, and it can be built over time.
- Application: The buy and hold strategy allows investors to build equity by making mortgage payments, ultimately increasing their ownership stake in the property.
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Property Appreciation:
- Definition: Property appreciation refers to the increase in a property's value over time, driven by factors like population growth and scarcity of land.
- Application: The buy and hold strategy benefits from property appreciation, as it requires time for the investment property to significantly increase in value.
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Cash Flow:
- Definition: Cash flow is generated through recurring rental income, providing a form of passive income for real estate investors.
- Application: The buy and hold strategy utilizes rental income to create a secure and consistent cash flow, which can be reinvested into the property for maintenance.
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Leverage:
- Definition: Leverage involves borrowing capital to increase the expected returns on an investment.
- Application: Real estate investors can use leverage by financing investment properties, allowing them to potentially enhance returns, as illustrated in the example provided in the article.
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Deduct Depreciation:
- Definition: Real estate depreciation is a tax strategy where investors can deduct the property's value over a set number of years.
- Application: The buy and hold strategy allows investors to deduct depreciation, lowering their tax liabilities and preserving more capital.
The article emphasizes that the buy and hold strategy is a time-tested approach, highlighting its benefits such as building equity, utilizing property appreciation, generating cash flow, leveraging, and taking advantage of tax deductions through depreciation. It encourages individuals to start investing early to reap the financial benefits in the future.
