Whether you’re an experienced investor or just getting started, you have numerous
real estate investment options. You can focus on flipping properties, wholesaling, or
investing in notes. Or, you could buy and hold real estate to generate steady,
recurring income and benefit from long-term property appreciation.
However, before you decide on your investment strategy, it’s important to
understand how buy and hold real estate works. This article outlines five key aspects
of this real estate investment strategy to help you determine whether it’s the right
fit for your goals.
Recurring Income- The primary advantage of buy and hold real estate is generating
consistent recurring monthly income by renting out your property. In addition,
renters pay down the principal on your loan, which helps reduce your overall interest
costs.
Tax Benefits- Real estate is one of the most tax-favored investments in the US,
offering exceptional tax benefits. These benefits include the ability to deduct
mortgage interest, management fees, repairs, and more. Additionally, real estate
tends to appreciate in value over time, which can significantly reduce your taxable
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Unpredictable Market Cycles- Real estate goes through multiyear cycles that can
impact profits. During these times, you’ll want to stay patient and remain committed
to your long-term investment strategy. It’s also important to consider the impact of
rising inflation on your portfolio. If inflation is high, your buy and hold properties may
not be as profitable as you expected.
Illiquid Investment- Real estate is an illiquid asset, meaning it takes longer to sell
than stocks or other investments. This can limit your liquidity and make it harder to
diversify your portfolio.
Changing Neighborhoods- As population growth changes, local neighborhoods can
change quickly, which can affect property values. It’s important to research
demographic shifts and other trends to identify areas with potential for growth.
There are many ways to invest in buy and hold real estate, including traditional
loans, private lenders, and hard money loans. Regardless of the method you choose,
it’s important to plan ahead and work with professionals who have experience with
buy and hold investing. They can provide you with in-depth information about area
properties and offer insight into your specific financial situation and investment
goals.
Ultimately, buying and holding rental properties is a solid investment strategy that
can help you achieve your financial goals over the long term. However, it’s not for
everyone. Before you dive in, be sure to consider your level of involvement and the
scope of potential property management tasks before deciding if this is the best
investment for you.