Buy-and-hold real estate investing is the purchase of rental property with the intention of holding it for a long period. It is the most common real estate investing strategy, with investors expecting to receive monthly rental income and future appreciation. A good return on investment (ROI) on buy-and-hold real estate is 9 percent or more yearly.
If you have a buy-and-hold opportunity and are looking to finance the purchase, check out Visio Lending. It provides 30-year term loans for single investments as well as portfolio loans for three to seven properties. Get up to $2 million with competitive rates for prime borrowers. Get prequalified online in just a few minutes.
How a Buy-and-Hold Real Estate Strategy Works
A buy-and-hold real estate strategy is a strategy used by real estate investors to purchase properties, rent them out and hold them for the long haul, typically five or more years. The buy-and-hold real estate strategy is the most common type of real estate strategy because it’s generally considered easier than fixing and flipping properties because no experience is necessary, and you can hire professionals to help manage your properties.
A buy-and-hold real estate strategy can be a good way for beginners to get involved in real estate investing. It’s also a solid strategy for experienced investors who want to build wealth over time from property appreciation and equity buildup.
Types of Buy-and-Hold Real Estate Investments
Buy-and-hold real estate investing is a long-term investing strategy, and there are several types of buy-and-hold investing. These include things like investing in turnkey real estate and apartment buildings.
Types of buy-and-hold real estate investing strategies include investing in:
- Turnkey real estate: Purchase a move in ready property outside of your neighborhood that usually comes with tenants and a property management company in place
- Vacation rental property: Invest in a vacation property that offsets some of the costs of home ownership by bringing in rental income
- Multifamily property: Purchase a property with 2-4+ units and rent it out for rental income
- Apartment building: Purchase a property that typically has 5+ units and creates monthly rental income and other income like vending and parking revenue
- Commercial real estate: Purchase a property that is used for business purposes like an office building, retail store or hotel
Five Benefits of Buy-and-Hold Real Estate Investing
There are typically five benefits that you can realize by investing in buy-and-hold properties that make them beneficial for long-term investors. Some of these benefits include passive income, tax deductions, equity buildup and more.
Here are the five benefits of investing in buy-and-hold real estate:
1. Monthly Income on Buy-and-Hold Real Estate
One of the main benefits of buy-and-hold real estate investing is monthly rental income and any other revenue the property generates like vending, laundry and parking income. This income is considered passive income and typically is accounted for on a monthly basis.
To make sure you’re collecting as much rental income as possible, you need to set your rent price correctly. If you want to figure out how much you should charge for rent, check out our rental market analysis.
2. Depreciation/Deductions on Buy-and-Hold Real Estate
There can be tremendous tax advantages that come from owning buy-and-hold real estate. These include things like being able to write off certain expenses like depreciation as well as mortgage interest and loan origination fees deduction. Property tax benefits are another major advantage of buy-and-hold real estate investing.
For more information on buy-and-hold real estate investing tax deductions, check out our guide on rental property tax benefits and deductions.
3.Build Equity in the Properties You Hold
With buy-and-hold investments, your tenant is paying down your mortgage for you, meaning the equity in your property typically increases each month. Furthermore, tenants will even pay your interest expense, which is tax deductible. Therefore, it’s important to find good tenants who make prompt and on-time payments.
Find out more about finding tenants in our in-depth guide on how to find renters.
4. Appreciation of Buy-and-Hold Real Estate
Even though your properties can fluctuate in value, it’s a safe bet that a good property located in a good area will go up steadily in value over a long period of time. This is in contrast to short-term rehab investors who might renovate a property with the expectation that appreciation will happen more quickly. Typical appreciation of buy-and-hold real estate is between 3 percent and 5 percent yearly.
5. Leverage on Buy-and-Hold Real Estate
Because you can borrow money to buy rental properties, you are able to multiply how many properties you can buy. With only a modest down payment, you are able to purchase a valuable piece of real estate. Further, you can leverage existing equity to take advantage of home equity loans and lines of credit.
While flipping a house can generate a profit, it doesn’t create any passive income, doesn’t have any tax advantages, doesn’t build long-term equity, and leverage doesn’t have much of a long-term effect. For the person looking for long-term wealth creation, buy-and-hold wins hands-down.
How to Find Good Buy-and-Hold Properties
A property is a good candidate for buy-and-hold investing when it has both rental potential as well as the potential to go up in value over time. Additionally, a good candidate property will be located in an area with a pool of available and qualified renters who will occupy the property, thus generating steady rental income.
Three filters are usually needed in order to find good, long-term investment candidates:
1. Choose the Right Kind of Neighborhoods to Invest in
The best rental properties are located in solid working-class and middle-income neighborhoods. This is where 75 percent of the population lives. Look for good schools, available shopping and communities where people care about where they want to live.
When choosing a neighborhood to purchase buy-and-hold real estate, consider the following:
Be Wary of Investing in Bad Neighborhoods
Don’t be tempted to buy cheap properties in war zones. You’ll pay for those — literally — in the long run. There’s very little opportunity for appreciation, repairs will cost you dearly, and rents will not likely rise over time. A good rule of thumb: if you wouldn’t allow a family member to visit the property after dark, you probably don’t want to buy there.
Investing in Luxury Neighborhoods Can Cost You
On the other end of the spectrum, luxury properties can produce negative cash flow because the mortgage costs, property taxes and upkeep may exceed the rent the property can command. While appreciation might be good, negative cash flow will probably eat up all the gains. Again, stick with properties where the majority of your community lives, especially if you’re new to buy-and-hold real estate investing.
For more tips on investing in real estate, check out our guide on how to invest in real estate.
Invest in Your Own Backyard or Elsewhere
Lately, it’s getting popular for investors to buy rentals outside of their own areas. That’s certainly possible, but it requires experience and good systems to do it successfully. This is where turnkey real estate companies come into the picture. They purchase properties, rehab them and sell them to investors.
Investors typically purchase these turnkey properties outside of their own geographic areas. It gives them an opportunity to be hands-off landlords, diversify their investment portfolios and invest in good deals outside of their own neighborhoods. These properties come with tenants and have property management companies in place.
If you’re ready to start earning immediate rental income, check out Roofstock. It’s a reputable turnkey real estate provider offering seasoned properties that are already leased and generating cash flow. Its site has custom filters, allowing you to browse properties in up to 40 different rental markets and find one that works for your budget and desired location.
2. Locate Good Properties
Once you have an area in mind, the next step is determining what kind of property to acquire. The types of properties you should consider include single-family, multifamily, and/or apartment buildings in good condition. Let’s now look at some of the housing-specific features you should consider when investing in buy-and-hold real estate.
When investing in buy-and-hold properties, you should consider the following:
Invest in Single-family or Multifamily Properties
Many investors wrestle with the decision over whether to buy a single-family dwelling or a multi-unit property. Experts typically agree that single-family units are generally best for the new investor.
Yet, small multi-unit buildings like a duplex can be wise purchases because they generate some rent even if a unit is vacant. Keep in mind, when a single-family property is vacant, you get no rent. Apartment buildings and multi-unit properties with more than four units require more intensive management and are best suited for seasoned investors.
For more information on buying a multi-unit building, you can read our ultimate guide on how to buy a duplex, triplex, or fourplex.
Condition of the Buy-and-Hold Real Estate Investment Matters
Buying a property in rent-ready condition is the obvious choice. However, be prepared to pay a higher price for it. On the other hand, a fixer-upper may offer a really good deal, but you’ll have to spend time and money getting it ready to rent.
Invest in Land or Commercial Buildings
You might also be tempted by potential buy-and-hold deals involving vacant land or commercial real estate. Both of these are best left for experienced investors. Land purchases typically do not immediately generate any income, but they do have expenses that need to be budgeted for. Commercial property has many complexities best left to more seasoned investors.
For more information on buying vacant land, check out our in-depth guide on buying land.
3. Ensure the Buy-and-Hold Real Estate Purchase Makes Financial Sense
As you look at a property, keep an eye on the financial factors. To begin, don’t be afraid to negotiate a good deal. Getting a discounted price may not seem important for a rental, but price affects your monthly carrying costs. More importantly, a good price means you are making money going into the deal.
Be sure you also know the rental rates for the area you are scouring. Is there a market for rentals there? Can potential tenants afford the rent you are expecting to charge? Finally, will the expected rent cover the expenses of running the property? You don’t want to impulsively buy a property and end up with monthly losses you can’t afford. Check out the cap rate of different properties so you can compare them and analyze the rate of return being generated by your buy-and-hold real estate investment.
4. Using a Real Estate Agent vs. Finding Buy-and-Hold Real Estate Yourself
Locating a good property can be done with a real estate agent or on your own. With an agent, you have the benefit of the multiple listing service (MLS), which shows all the agent-listed properties in your area. That can make quick work of finding a good property, although most will be at market price.
If you search for deals yourself, you may have a better chance of locating a below-market deal, but there will be fewer units from which to choose. If you prefer to search on your own, Craigslist is a good choice as are the various for sale by owner (FSBO) sites out there. You also may be able to negotiate a better deal because the seller won’t have to pay any real estate commissions.
For more information on how to find for sale by owner properties, check out our guide on how to find and buy FSBOs.
How to Finance Your Buy-and-Hold Property
When you purchase a property to hold, there are two ways to fund the purchase. You can either pay cash, which will provide immediate cash flow. Or, you can secure a mortgage or other financing, which will allow you to acquire properties even if you don’t have the full cash amount to buy.
The two types of financing for buy-and-hold real estate investing include:
1. Pay Cash for a Buy-and-Hold Property
There are definite advantages to paying cash for a buy-and-hold investment property. The clearest benefit is you start making monthly income right away. Since you don’t have a monthly mortgage payment, any monthly cash flow is yours to keep. Plus, if the property is ever vacant, you won’t have a large mortgage payment to make monthly out-of-pocket payments on.
Additionally, with cash-in-hand, you might be able to negotiate a better deal with the seller and a quicker closing. The clear disadvantage of paying all cash is that it can deplete your cash reserves. If you’ve sunk a tremendous amount into the purchase of the property, then you may have very little left over for monthly costs or financial emergencies for the property.
2. Take Out a Loan for a Buy-and-Hold Property
Most people don’t have the money to pay all cash for a rental property; so financing is a necessity for them. Yet, there are certain advantages to using borrowed money. As long as you have the needed down payment, the creditworthiness to borrow and the purchase makes financial sense, you have the potential to acquire a loan for your next property.
Plus, financial leverage creates greater returns. You’re using a small amount of money — your down payment — to get the benefit from a large asset. Think about it: for only $10,000 or $15,000 out of pocket, you may be able to purchase a $100,000 rental property and get all the financial benefits from it. This means that you are benefitting from the $100,000 investment, not just the $10,000 down payment.
There are disadvantages to financing, however. The biggest monthly expense is going to be the mortgage payment which can eat up much — and in some cases, all — of the rent. If the property goes vacant, you’ll have to pay that mortgage payment out of your pocket. The loan itself also comes with costs — both the costs to obtain the mortgage and the interest you pay for borrowing the money.
If you are looking for investment financing, check out Visio Lending, a buy-and-hold real estate lender. It offers long-term loans for both single-property and portfolio investments, which are three to seven properties). You can finance up to $2 million with a loan-to-value (LTV) of 75 percent to 80 percent, and interest rates are competitive for prime borrowers.
Types of Buy-and-Hold Real Estate Loans
Financing for buy-and-hold rental properties comes in four basic forms: online rental property loans, conventional loans, government loans and seller financing. Each of these loan types is typically right for a specific type of buy-and-hold investor.
Below are the four most common buy-and-hold investment financing options:
1. Online Rental Property Loans
An online rental property loan is offered by a buy-and-hold lender that typically doesn’t have a brick-and-mortar location, operates completely online and offers a streamlined process. These buy-and-hold lenders are typically tailored toward investors and offer competitive rates and investment property loans. Below, we have a quote from one of our recommended online buy-and-hold lenders.
“Every property you obtain makes it increasingly difficult to meet debt-to-income requirements for government loans and local banks. If you’re aiming to grow your rental portfolio but are having a hard time qualifying for financing, you’ll want to look for online lenders like Visio Lending with asset-based loans that qualify based on the property and don’t look at income or tax documentation.”
— Alyssa Tomashek, Marketing Specialist, Visio Lending
2. Conventional Loans
These conventional loans originate from banks and other financial institutions and can include portfolio loans or blanket mortgages. These can be easier to qualify for, but the interest rates and fees may be higher than with other options. Furthermore, many conventional loans require 20 percent or more as down payment.
3. Government Loans
Loan program providers like the Federal Housing Administration (FHA) and the United States Department of Veterans Affairs (VA) offer loans with generally lower down payments than with conventional loans. FHA loans typically require 3 percent down, and qualified veterans can be approved for $0 down payment. Terms are typically easier, and interest rates lower than with conventional loans — loans from the FHA and VA are both currently averaging less than 4.6 percent.
However, government loans can be harder to qualify for and are intended for one’s primary home and not investments, although both the FHA and VA allow borrowers to purchase one- to four-unit properties as long as they intend to live in one of the units. What’s more, some types of Small Business Administration (SBA) loans can also be used to purchase commercial real estate for a buy-and-hold strategy.
4. Owner Financing
Owner financing is when the seller replaces the bank, and he or she finances the property and accepts monthly payments instead of receiving the full amount of the sale at closing time. Sellers may agree to this because the monthly payment usually includes interest, so it provides a good addition.
For sellers who don’t need all their cash out at the time of the sale, owner financing can be attractive. You may also find sellers willing to be flexible with the terms and interest rate, which can help keep monthly costs in check. Owner financing rates and terms vary the most because they’re completely up to the buyer and seller to agree on.
For more information on owner financing, how it works, and what to expect, check out our in-depth guide on owner financing guide.
Managing Buy-and-Hold Real Estate
Be advised that a buy-and-hold investment is not passive, and it requires ongoing management. There are fundamentally two different ways you can manage your holdings: you can hire a property manager or manage the building yourself. Hiring someone costs more but requires less of your time while managing the property yourself is the opposite.
To manage your buy-and-hold investment, you typically need to:
Hire a Property Manager for Your Rental Property
Let’s cut to the chase: a property manager will cost in the neighborhood of 7 percent to 12 percent of your monthly rent. Plus, you may end up paying a month’s rent for placing the tenant. That cost often scares off inexperienced investors, and it’s understandable. However, that doesn’t make using a property manager a bad situation.
Consider the realities: for even 10 percent of your rent roll, you are getting 24/7 management of your unit. The manager will advertise the property, show the property, screen tenants, take rental payments and coordinate the repairs. No more 2 a.m. calls about a backed-up toilet. If the tenant is late with the rent or disturbing the neighbors, the management company knows how to handle it.
Still, using a manager doesn’t mean it’s a fully hands-off process. There’s a certain amount of “managing the manager” necessary. One of the most common mistakes buy-and-hold investors make is thinking they can put their property in the hands of a property manager and just sit back and collect rent checks each month. The truth is, a lot of work goes into selecting a good manager. Then, you need to check with your manager periodically, stay apprised of the status of the property and make sure the manager is doing his or her job.
Manage Buy-and-Hold Real Estate Yourself
If you prefer to keep the money you’d otherwise pay to a property manager, you’ll have to take on the tasks the manager would handle. You’ll have to advertise the property, show it to prospective tenants, screen them, collect rents, handle repairs and do the bookkeeping. To help, you can read our article on landlord checklists and download our free checklist template.
If you decide to self-manage, you’ll still need the services of various professionals. First, while not required, consider using a real estate agency to list the property on the MLS and affiliated sites like Trulia. The largest pool of qualified tenants is going to turn to local real estate companies to find a rental. Even though you have to pay an agent a month’s rent in commission to secure a tenant, you’d probably cost yourself that much or more in vacancy and other expenses trying to get the rented property yourself.
You also need a good address book of tradespeople — a handyman for repairs, plumber, appliance repair and so on. You also need a lawyer, one who is experienced in landlord-tenant relations for crafting your lease and those times when an eviction is unavoidable. Luckily, there’s software available that can help with this. Read our buyer’s guide on the best property management software for more information.
One of our top recommended property management software providers is Avail. It’s a reputable nationwide company that offers tenant screening, online rent collections and maintenance scheduling. The first unit is always free.
How to Get Tenants for Your Buy-and-Hold Real Estate Investment
The key to long-term success with buy-and-hold properties is in getting good tenants to occupy your units. This starts with setting the right rent price and good advertising and marketing of the property. Then, potential tenants must be screened carefully to find the best candidates. Finally, you need to have a strong lease in place.
To get tenants for you buy-and-hold investment you should:
Price Your Buy-and-Hold Real Estate Investment Correctly
You need to set your rental price correctly in order to find and attract the right tenants. You should set your rent price at fair market value by using the rents of comparable properties, taking into consideration the amenities, neighborhood and size of your property. A general rule of thumb says that your rent should be about 1 percent of your property value.
Here’s a map that shows median rents by state so you can see how your property’s rental price compares.
Market to Get Tenant Leads for Your Buy-and-Hold Property
Whether you use the services of a real estate agent, a property management firm or do it yourself, you want to fill a vacant property as quickly as possible. That means robust marketing to draw a pool of potential renters. This is where the MLS and other sites like Zillow or Apartments.com are helpful.
Fortunately, you don’t need to be an agent to use services like Trulia yourself. Another free tool is Craigslist. Once a property is listed, either you or your agent/manager will need to show the property. The more people who see it, the more likely you will end up with a qualified prospect.
Screening Tenants for Your Buy-and-Hold Real Estate
Fledgling investors are often so anxious to get their property rented that they will take anyone who’s willing to fill out the paperwork. That’s typically a disaster waiting to happen. Instead, screen your prospects carefully. You’ll want to verify their employment and income, check their credit, do a criminal background check and get references from prior landlords.
You can read our article on how to screen tenants for a rental property for more information.
If you are uneasy about anything during the screening process, it’s probably best to forego that candidate and move on to another. It’s probably better to forego a month’s rent while you wait for a better candidate than to get a potentially bad tenant who will cost you more in the long run. Some warning signs might be unverifiable employment or extremely bad credit.
At the same time, make sure you don’t overstep the law, such as by discriminate illegally. If a tenant is qualified, he or she is qualified — period. Luckily, there’s also software available to help you screen and find the best tenants. You can read our buyer’s guide on the best tenant screening software for more information.
Have a Good Lease
Once you have a qualified tenant who wants to move in, you must have a solid lease for them to sign. Don’t make the mistake of trying to download some random template from the Internet. You need a rigorous lease that protects you while still being legal and fair to your tenants. Your agent or property manager will have one available. If you are managing the property yourself, consider getting your lawyer to provide your master lease. At least, consider paying for one from a legal service like Rocket Lawyer.
Maintaining a Buy-and-Hold Property
You will incur expenses with your rental property, so you must be prepared for them. The older the property, the more likely something will need to be fixed. While some of the items may be reimbursed out of tenant’s damage deposits, you still need to budget for maintaining the property.
While you might fully expect to pay for rental property insurance and mortgage payments, an often overlooked expense area is periodic maintenance. Carpet wears out, units need to be repainted and appliances break down. There are no hard-and-fast rules for how much repairs are going to cost because there are simply too many variables. However, it’s safe to say that repairs will probably be more than what you expect.
Reserves for Buy-and-Hold Real Estate
Because it’s hard to predict repair costs, it’s important to maintain some reserve funding for each property. You don’t want to learn that the air conditioning system has completely failed and have no idea how you are going to pay the $3,000 cost to replace it.
The beginning of a bad financial situation is needing to turn to your credit cards to pay for something like that. Instead, keeping a reserve fund for each property is important. Again, there are no hard-and-fast figures for how much, but building a reserve of three months of rent is a good start.
Understanding the Numbers for a Buy-and-Hold Investment
Every investor needs to be comfortable with the basic numbers involved in their investment. For a buy-and-hold property, these figures are gross income, vacancy rate, net income, expenses and cash flow — and how they work together. It’s also important to understand the role that appreciation and tax advantages play in holding a property.
Numbers you need to know for a buy-and-hold investment are:
- Gross income: This is simply the annual total of the monthly rent; you multiply the monthly rent by 12 to give you the annual gross income
- Vacancy rate: This is a percentage for how long a unit is vacant; vacancy averages 10% to 15% across the country, although your local rate may be higher or lower; that means, on average, a typical rental unit is vacant for approximately one month
- Net income: The income figure left over after factoring out vacancy losses
- Expenses: This figure covers interest, taxes, insurance, maintenance/repair, homeowner’s fees, professional services like legal services, property management and advertising; most investors like to look at expenses on a monthly basis
- Cash flow: Cash flow is what’s left over from gross rent after paying expenses; typically, cash flow is calculated monthly
Here’s a basic example of calculating cash flow:
Cash Flow Calculation Example
|Gross Income ($1,000 monthly rent x 12)||$12,000|
|Less Vacancy Rate (10%)||-$1,200|
|Net Operating Income||$10,800|
|Expenses ($800 per month x 12)||$9,600|
|Cash Flow ($10,800-$9,600)||$1,200 annually, or $100 monthly positive cash flow|
Understanding the Characteristics of Cash Flow
Cash flow can be a positive figure — you made money — or a negative one when you invest in real estate. If you’ve paid all cash for the property, the chances are that you’ll have a positive cash flow. If you have a high mortgage, it’s likely you’ll have a negative cash flow.
Negative cash flow certainly isn’t desirable, but it’s not necessarily a losing situation if you can afford to pay for it. Keep in mind, your tenant is paying down the mortgage, and that’s just deferred profit. What you may not be pocketing each month may be building up like a savings account in the property.
Another key point is that rents naturally follow inflation. Periodically, you will be able to raise rents, which will increase your cash flow. Even if you experience negative cash flow early on, it can eventually break even and turn positive if you’ve picked good investments.
If you want to figure out your property’s cash flow and ROI easily, check out our free rental property calculator.
Profiting from Appreciation and Equity Buildup
The above means, in addition to monthly cash flow, equity build up eventually builds your wealth. If you’ve selected a good piece of property, appreciation will raise its value over time while the tenants are paying down your mortgage. So, between appreciation and mortgage pay down, your equity in the property increases each month just like a bank account.
Tax Benefits from Holding Real Estate
Rental properties offer many tax advantages. Depreciation for rental property is one of the best remaining tax advantages available to you. Even though a property will typically appreciate, you can treat it as if it’s wearing out and going down in value, which is known as depreciation. Depreciation amounts can be used to reduce your taxes.
Exit Strategy of Buy-and-Hold Real Estate Investing
Here’s a question: do you keep a rental perpetually or sell it down the road and cash out the equity? That is a question you will ultimately have to answer. Keeping it provides a perpetual recurring income, one that can carry over as a legacy to your children. However, you don’t gain anything from the equity buildup until you sell. If you are willing to forego the monthly residual income, you can sell a few years down the road and possibly gain a windfall from the sale.
Things That Can Go Wrong with a Buy-and-Hold Rental
Holding a property is not without its complications, and you need to be prepared for the possibility of things going wrong. These can include rent collection issues, problem tenants, mismanagement and situations requiring serious repairs.
Things that can go wrong with your rental property may include:
Problems Collecting Rent from Your Rental Property
Even a good tenant may occasionally be late with their rent. On the other hand, there are tenants who treat paying rent as a low priority, and that can create a problem for you. Since you probably have a mortgage to pay, if the rent is late, you have to pay that mortgage payment out of your pocket. The longer that goes on, the deeper in your pocket you’ll have to dig.
In every state, there are legal procedures for handling delinquent tenants. You’ll be able to use a specified series of late notices and remedies that may, unfortunately — if the tenant doesn’t pay — lead up to eviction. Don’t be timid in using them. Too many newbie landlords try to be the good guy only to find their tenant gets two or three months behind in rent, with very little likelihood of ever collecting it. Use the legal processes available to you to stay on top of rent payment.
To find out more about landlord tenant law in your state, check out our landlord tenant guide with a free interactive map.
Nuisance Tenants in Your Rental Property
You may have a tenant who regularly pays rent, but who is still problematic. Perhaps they are destructive to your property, disturb neighbors or regularly violate lease terms, homeowners’ association guidelines or local or state ordinances. Just like with rent, there are legal procedures in your area you can employ to either curtail the problems or, if need be, remove the tenants. Don’t be afraid to use those laws.
To avoid this problem, make sure you have solid tenant screening software in place. You can read our buyer’s guide on the best tenant screening software services for the best providers. Choose the one that best suits your needs.
Property Manager Is Not Doing Their Job
Despite your best efforts, your property manager may not live up to your expectations, or he or she may suddenly get inattentive to your property. Confront the manager about his or her responsibility for diligence and care of your property. If the manager doesn’t conform, it’s time to fire that person and engage another manager. Poor management can be as costly as bad tenants, so get on top of any deficiency quickly.
Handling Major Repairs and Serious Events for a Rental Property
There may come a time when you face a major event such as a weather incident or the breakdown of a major system at the property. Examples include fire, flood or something like a roof in need of undeniable replacement. Such things can be financially catastrophic if you are not protected adequately. Two items will safeguard you under such circumstances: good insurance and your reserve fund.
Robust insurance protects you against what are called “perils” like flood, fire, wind damage and so forth. So, have a conversation with your insurer about setting up a good landlord insurance policy with adequate coverage. Your reserve fund will help you tread water against unexpected costs like protracted vacancies or substantial repairs and even the unexpected financial outfall from an insurable event.
Buy-and-Hold Real Estate Investment Property Frequently Asked Questions (FAQs)
Below we will answer a few of the most frequently asked questions on buy-and-hold real estate and the buy and real estate strategy. If you have additional questions or would like to comment, please visit our forum.
What Is a Buy-and-Hold Real Estate Strategy?
A buy-and-hold real estate strategy is when a real estate investor purchases a rental property with the purpose of holding it for the long term. This is the most popular type of real estate investing strategy. An investor typically makes money both in the short term from rental income and in the long term from property appreciation.
What Does Buy-and-Hold Mean in Real Estate?
Buy-and-hold real estate means that you purchase a property with the intent to hold it for a long period of time, typically more than five years. You’re purchasing a property with the intention to make positive cash flow from monthly income and take advantage of potential future appreciation as well as equity as the property appreciates and if you renovate it.
This is the opposite strategy from fixing and flipping, where you purchase a property with the intention of rehabbing it and flipping it quickly for a profit.
What’s a Good ROI on a Buy-and-Hold Real Estate Investment?
Generally, a good ROI in the industry for a buy-and-hold real estate investment is 9 percent or higher annually. Your ROI will be higher if you use leverage and finance the property because you will have less out of pocket money invested. To figure out the ROI and cash flow on your rental property, check out our free rental property calculator.
The Bottom Line
Buy-and-hold investing offers multiple financial benefits, including the potential for ongoing income. To have a successful buy-and-hold real estate strategy, you want to choose the right properties in good neighborhoods Whether you choose to manage those properties yourself or employ the services of a professional property manager, you must be prepared for the ongoing responsibility of ownership and oversight.
If you need financing for a buy-and-hold real estate investment opportunity, take a look at Visio Lending. It provides 30-year term loans for single investments as well as portfolio loans for three to seven properties. Get up to $2 million with competitive rates for prime borrowers Get prequalified in just a few minutes.