Real Estate Investment Strategies: Buy and Hold

Real estate investment has been seen as one of the most attractive investment vehicles in decades. Property investment allows to diversify portfolios, secure income and gain long-term capital growth. Buy and hold is one of the most popular strategies used by beginners in real estate investing. In this blog post, we are going to cover the very basics of the buy and hold strategy and discuss its advantages and disadvantages.

Basics of Buy and Hold Investment Strategy

The buy and hold investment strategy is mainly based on long-term wealth accumulation by holding on to the property over a certain period of time. Therefore, there’s no need to predict quick short-term changes in the real estate market.

The main idea of the buy and hold strategy is to purchase an income property, keep it over a long period of time, and gradually fill it out and improve the condition of the property to increase future returns on invested capital.

Essentially, buy and hold is a passive investment strategy that involves minimal effort on day-to-day management and can bring stable returns in the long-term, if done properly.

Advantages

Minimal Time Commitment

The buy and hold strategy is fairly simple and requires minimum to no involvement in the day-to-day operations of the property. This type of investing is a great fit for investors with office jobs, busy parents, and other individuals who don’t have much time to spend on the real estate management.

Steady Cash Flow

Unlike real estate flipping, when you invest using buy and hold strategy you don’t expect to make a fortune in a short-term, however, you can count on a steady cash flow generated by the rent earned from tenants, rather than the price manipulation.

Tax Benefits

The long-term investing in real estate can come with various tax benefits. Depending on the tax law of your particular location, you may be able to take advantage of capital gains deferral, that allows you to delay the tax relief until you sell the property.

Disadvantages

Limited Liquidity

By opting for a buy and hold strategy, you are making a commitment to keep the property for a longer period of time, thus reducing the liquidity of your investments in the short run.

Property and Market Risk

Real estate market is always changing, and even with the most thorough research done before, you can’t always predict the future prices of the property. Another real estate-related risk of owning a buy and hold property is the maintenance costs and potential legal issues that come with property ownership.

Tenant Risk

In buy and hold investment strategy, it’s essential to pick reliable tenants to rent the property and make sure that income is steady. Finding tenants and managing the property can increase costs.

Conclusion

The buy and hold strategy is a great option for individuals looking for a hands-off, low-cost investment vehicle, that can provide steady returns in the long-term. Despite being relatively simple to understand and implement, buy and hold involves the same risks, such as market and tenant risks, as any other real estate investments strategy. Therefore, always research the market, different investment options and assess the property before making a decision.