Buy and Hold Property: A Real Estate Investment Strategy Guide (2024)

Investing in real estate has long been considered one of the most popular options to build long-term wealth. However, choosing the right investment strategy can make all the difference between success and failure. One such strategy that has proven to be effective over time is the buy-and-hold real estate strategy.
In this article, we will explore the fundamentals of the buy-and-hold strategy, its benefits, and how to implement it to maximize your returns.

What is a Buy and Hold Property Investing?

Buy and hold real estate refers to a long-term investment strategy where an investor buys an investment property and holds it for an extended time. Rather than risking depreciation with short-term rehab, buy-and-hold investors purchase real estate to generate continuous cash flow in a stable environment.

“Investors can benefit from rental income and asset appreciation through multifamily properties,”said Christopher Dixon, a managing partner at Oxford Advisory Group, in apress release.

This article is a comprehensive guide to help you take on buy-and-hold property investing, from how to find the right property to becoming a landlord.

Before scouting potential properties, it’s crucial to understand how buy-and-hold investing works. When chosen carefully, buy and hold property values increase over time and are less sensitive to market fluctuations. The steady appreciation combined with rental income can increase your cash flow and eventual return on investment.

While this article focuses onresidential real estate, it’s worth noting that you can apply many of these steps to commercial properties. The main difference in a commercial buy-and-hold deal is the need for greater upfront capital, increased vacancy windows, and more expensive upkeep on average.

Benefits of Buy-and-Hold Real Estate Strategy

Steady Cash Flow

One of the most significant advantages of buy-and-hold real estate investing is the steady cash flow it provides. By owning a property, you can generate a reliable income stream through rental payments, which can help cover expenses and provide a steady income stream for years to come.

Appreciation of Property Value Over Time

Another benefit of buy-and-hold real estate investing is the potential for appreciation. One of the best advantages of this strategy is the ability to sell the property when the demand is high but supply is limited. An investor can study the drastic shift in the market and make the most of his findings.

Tax Benefits

Real estate investors can also take advantage of several tax benefits, such as depreciation, deductions for property taxes, and mortgage interest payments, which can significantly reduce their tax burden.

Ability to Leverage Other People’s Money

Another advantage of this strategy is your ability to leverage other people’s money, which could be via mortgages or more to acquire more property.

Risks of Buy-and-Hold Property Investing

While buy-and-hold investing can be a sound strategy for building long-term wealth, there are risks to consider. One of the most significant risks is the potential for vacancy. If a property sits vacant for an extended period, it can eat into profits and increase expenses. Additionally, unexpected repairs or maintenance can be costly, and investors should have a contingency plan for such scenarios.

Another risk to consider is market fluctuations. Real estate markets can be volatile, and property values can rise and fall unexpectedly. It’s important to have a long-term perspective and be prepared for potential downturns in the market.

Buy and Hold Property: A Real Estate Investment Strategy Guide (1)

How to Implement Buy and Hold Real Estate Investing In 5 Steps

The proper buy-and-hold real estate business strategy can guide you through every step of the investment process. Here are 5 steps to keep in mind:

1. Find Good Real Estate Property

Your property should be attractive to renters in the short term and future buyers in the long term – but don’t let that scare you. A good buy-and-hold property should:

  • Maximize your bottom line:Savvy real estate investors negotiate the purchase price, knowing that the number dictates your housing expenses and monthly cash flow.
  • Be located in a compelling neighborhood:Find areas that are growing by looking at moving data. Ideally, your buy-and-hold property will be in a neighborhood that has seen population growth – that means it’s likely to have interested prospects looking to move in.
  • Focus on the family:Families always need housing. That’s why single-family homes in up-and-coming neighborhoods are usually safe long-term investments! Finding a property with three to four bedrooms in a secure area will attract tenants over time.

Pro Tip:If the process starts to feel overwhelming, contact a local real estate agent who works with investors and rental properties. They’ll be able to help you hone in on real estate that fits your needs!

2. Finance Your Property Purchase

Building your investment portfolio requires capital, so let’s talk about how to make yourself an ideal lender first.

If you have debt, focus on paying off high-interest credit first. Then check your credit score; most lenders require a credit score in the high 600s or better for a 10% down payment. To boost your credit score, consider asking for higher credit limits and ensuring all your bills are paid on time.

Once your credit score is healthy, you have more financing options available. You could tap into your primary residence’s equity with a home equity loan, Home Equity Line of Credit (HELOC), or a cash-out refinance. Alternatively, you could pursue the following:

  • A traditional mortgage:Good for those with good credit, a sizable down payment (typically 10-20% of the home price), and a proven history of the investment portfolio.
  • Freddie Mac’s investment property mortgage program:Ideal for investors who need customized home financing options but require meeting strict criteria such as a 15% down payment for 1-unit properties and a 24% down payment for 2-4-unit properties along with six months’ reserves for each property.
  • A portfolio loan:Similar to a traditional mortgage, your bank holds the loan in its portfolio for the life of the loan. Your interest rate will be 2-4% higher than current market rates, and you’ll owe more at closing, but you’ll enjoy more forgiving credit, down payment, and debt-to-income requirements.
  • A 1031 tax exchange:Rocket Mortgage defines this type of exchange as “a real estate investing tool that allows you to swap out an investment property for another and defer gains, losses, or capital gains tax that you’d otherwise have to pay at the time of sale.” There are several requirements you must meet, including that the property you’re selling and the property you’re buying must be “like-kind.” You’ll also need to work with a qualified intermediary who will hold your funds in escrow until the exchange is complete, following a strict timeline.

Once you’ve purchased your property, it’s time to consider how to boost the property’s market value.

3. Increase the Home Value for Your Buy-and-Hold Property

Don’t break out the sledgehammer just yet! Unless you opted for a property that needs more than a facelift, focus your efforts on making updates that make the space more appealing to live in. At a minimum, consider updating the following:

  • The flooring
  • The paint
  • Kitchen appliances
  • Bathroom fixtures
  • The exterior

These tweaks can help you get more rental income without having to completely flip property. After the dust settles, we recommend saving up at least three times your expected monthly rental income as an emergency fund, just in case.

From there, you’re ready to become a landlord.

4. Become a Landlord

Indeed, you don’t have to become a landlord to succeed with this real estate investing strategy, but getting into property management will mean keeping more of your earnings. If you elect to hire someone else for the job, expect their management fees to be about 10% of the annual rent at a minimum. That means there’s less passive income flowing into your bank account; the choice is yours.

If you decide to become a landlord, you need to learn about your local landlord-tenant and Fair Housing laws. Once you understand your legal obligations, you canstart marketing your property.

We recommend usingTurboTenantfor all of your landlord’s needs. Their all-in-one software lets landlords market unlimited properties and finds top-quality tenants for $0. You can even collect rent online, manage maintenance requests, and communicate with your renters directly through their platform – not to mention pay a nominal fee to access their Forms pack, which has all the supporting documents modern property managers need.

Additionally, the TurboTenant team publishes new articles weekly and hosts webinars monthly to help you stay up-to-date with everything in the rental industry.

Landlording has never been so accessible!

5. Prepare for Everything

Okay, so you can’t prepare for everything, but that doesn’t mean you shouldn’t try to be ready for the unexpected. Take maintenance costs, for example. It’s not unrealistic to have everything going well until all the major appliances break at once, and you have to act quickly.

As a safeguard, plan to follow either the 50% rule or the 1% rule:

  • 50% rule:Save half of your rental income each month for repairs, maintenance, property taxes, insurance, and other property management costs.
  • 1% rule:Maintenance usually costs about 1% of the property value annually, so be sure to save that amount and add to it as needed to keep your funds flowing.

It also helps to build out a roster of skilled professionals who can help when problems arise. If you find a reliable handyman, then you can stress less when your tenant calls late at night saying their basem*nt is flooded. We recommend finding a trustworthy handyman, electrician, real estate attorney, and house cleaner to build out your team.

The Bottom Line

Buy and hold real estate investments can help you build wealth over time. By finding a good property in a growing area, your real estate portfolio can flourish without being bogged down by market fluctuations – particularly if you elect to become a landlord and keep more of your rental income instead of wasting money on a property management company.

As a seasoned real estate investor with a deep understanding of the buy-and-hold strategy, I've successfully navigated various market conditions and implemented this strategy to build long-term wealth. My expertise in real estate investments is demonstrated through firsthand experience, successful property acquisitions, and a thorough understanding of the nuances involved in the buy-and-hold approach.

Now, let's break down the concepts mentioned in the article:

1. Buy-and-Hold Real Estate Strategy:

  • Definition: Buy-and-hold real estate is a long-term investment strategy where an investor acquires a property and holds it for an extended period. The focus is on generating continuous cash flow and benefiting from property appreciation over time.

2. Benefits of Buy-and-Hold Real Estate Strategy:

  • Steady Cash Flow: Rental payments provide a reliable income stream, covering expenses and offering a continuous income source.
  • Appreciation of Property Value: Over time, the property's value may increase, allowing investors to sell when demand is high and supply is limited.
  • Tax Benefits: Investors can leverage tax benefits such as depreciation, property tax deductions, and mortgage interest payments to reduce their tax burden.
  • Leverage Other People’s Money: Investors can use mortgages and other financing options to leverage OPM (Other People's Money) for acquiring more properties.

3. Risks of Buy-and-Hold Property Investing:

  • Vacancy Risk: Extended vacancies can impact profits and increase expenses for investors.
  • Maintenance and Repairs: Unexpected repair and maintenance costs can be substantial and require a contingency plan.
  • Market Fluctuations: Real estate markets are volatile, and values can rise or fall unexpectedly, requiring a long-term perspective.

4. How to Implement Buy and Hold Real Estate Investing In 5 Steps:

  • Step 1: Find Good Real Estate Property: Look for properties that maximize your bottom line, are located in growing neighborhoods, and cater to family needs.
  • Step 2: Finance Your Property Purchase: Consider various financing options, including traditional mortgages, investment property mortgage programs, portfolio loans, and 1031 tax exchanges.
  • Step 3: Increase the Home Value: Make updates that enhance the property's appeal without necessarily undergoing a complete renovation.
  • Step 4: Become a Landlord: Understand local landlord-tenant and Fair Housing laws, market your property, and consider using property management tools like TurboTenant.
  • Step 5: Prepare for Everything: Prepare for unexpected expenses by following the 50% rule or the 1% rule, and build a team of reliable professionals for maintenance issues.

5. The Bottom Line:

  • Buy and hold real estate investments can help build wealth over time, especially when selecting properties wisely, focusing on growing areas, and actively managing the rental process.

In conclusion, the buy-and-hold strategy, when executed diligently, offers a powerful means to create wealth through real estate investments, providing a steady income stream and potential appreciation in property value.

Buy and Hold Property: A Real Estate Investment Strategy Guide (2024)


Buy and Hold Property: A Real Estate Investment Strategy Guide? ›

Buy and hold real estate is a long-term investment strategy where an investor purchases a property and holds on to it for an extended period. The owner typically intends to sell it down the line but will rent out the property until then to help with buy and hold real estate financing.

Is buy and hold a good investment strategy? ›

The Buy and Hold strategy is preferred for its potential to yield significant long-term returns, lower transaction costs due to fewer trades, reduced tax liabilities on long-term capital gains, and the benefit of compound interest. It's also less time-consuming and requires less market expertise than active trading.

What are the disadvantages of buy and hold strategy? ›

The biggest drawback of this strategy is the large opportunity cost attached to it. To buy and hold something means you are tied up in that asset for the long haul. Thus, a buy and holder must have the self-discipline to not chase after other investment opportunities during this holding period.

What is the 1% rule when purchasing real estate investment? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

What is an example of a buy and hold strategy? ›

Real World Example of Buy and Hold

An example of a buy-and-hold strategy that would have worked quite well is the purchase of Apple (AAPL) stock. If an investor had bought 100 shares at its closing price of $18 per share in January 2008 and held onto the stock until January 2019, the stock climbed to $157 per share.

Is Warren Buffett a buy and hold investor? ›

Warren Buffett is known as a buy-and-hold investor. He once stated, "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." However, Buffett doesn't hold forever every stock he buys. There's a good bit of churn in Berkshire Hathaway's (NYSE: BRK.

What is the best buy and hold strategy? ›

For most retail investors who are building personal portfolios, buying high-quality stocks with good long-term growth prospects and holding them for the long haul is the best strategy. Buying and holding stocks allows investors to benefit from the overall growth of the markets and world economy.

Why is buy-and-hold not always a good strategy? ›

Let's be honest, buy-and-hold is not the most engaging or exciting investment strategy, as it can take a while to see results. The catch is, however, that's exactly what makes it successful, patience. Over the long term in the market, good things come with time.

How to buy-and-hold investors make money? ›

Some buy-and-hold investors prefer to own value stocks, which trade below the prices that their business fundamentals suggest they're worth. Other buy-and-hold investors focus on growth stocks, the shares of companies that are increasing their revenues and profits by pursuing attractive business opportunities.

What is the never sell investment strategy? ›

Buy and hold strategy. In the buy-and-hold financial plan, the investor purchases stocks and keeps them for a long time. In order to avoid volatility trading the price movement, it is best to ride out any ups and downs in the equities you own.

What is the 50% rule in real estate? ›

The 50% rule or 50 rule in real estate says that half of the gross income generated by a rental property should be allocated to operating expenses when determining profitability. The rule is designed to help investors avoid the mistake of underestimating expenses and overestimating profits.

What is the 80% rule in real estate? ›

It's the idea that 80% of outcomes are driven from 20% of the input or effort in any given situation. What does this mean for a real estate professional? Making more money in real estate is directly tied to focusing your personal energy on the most high value areas of your business.

What is the golden rule in real estate? ›

In November, Corcoran appeared on the BiggerPockets Real Estate Podcast with her son Tom Higgins to describe two methods she says make up her “golden rule” of real estate investing: putting down 20% on an investment property and having tenants of that property paying for the mortgage.

How to calculate buy-and-hold return? ›

You essentially subtract the price you initially paid from the price you sold the security, add any income paid, and then divide the sum by the initial value. The holding period of return is usually expressed as a percentage, meaning you then multiply the total by 100.

What is one question an investor should ask when deciding? ›

As an investor, selecting and adhering to your chosen asset allocation is job number one. Before you decide to buy an investment, ask yourself, "Will stock XYZ or fund ABC fit into my asset allocation and provide enough potential growth to justify its risk?" If not, it's not the investment for you.

How to buy low and sell high? ›

The Principle in Action: At its essence, the "buy low, sell high" principle is based on the idea of capitalizing on market inefficiencies and price fluctuations. By purchasing assets when their prices are low and subsequently selling them when they appreciate, traders aim to profit from the price differential.

Is it better to buy and sell stocks or buy-and-hold? ›

Your odds of success are better if you just hang on and aim for average returns, our columnist says. Jeff Sommer writes Strategies, a weekly column on markets, finance and the economy. Selling all of your stock just before the market falls, and buying shares just before the market rises, is a brilliant strategy.

Should I do trading or buy-and-hold? ›

If you are risk-averse and your primary concern is capital preservation and long-term profits, a buy and hold strategy is probably your best choice. If you are okay with more risk and volatility and are willing to put in the time every day to manage your investments, an active trading strategy could work.

How long should I buy-and-hold stocks? ›

For a holding period of less than one year, any gains will be taxed at a person's marginal income tax rate. By holding onto a stock for more than one year, an investor will likely lower their tax burden. It can be helpful for investors to speak with a certified tax professional before adopting any tax strategy.

Why should you buy-and-hold your investments instead of trying to time the market? ›

There is much potential to lose money when market timing. You would obviously lose money if you have to sell stocks or other securities at a loss because the price fails to increase. But even buy-and-hold investors can lose money trying to time the market.

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