Any residence with two or more units in the same building is referred to as a multi-family property or multi-dwelling unit (MDU). This kind of home comes in various structures, including the,
Why is Buy-and-Hold a Top Real Estate Investment Strategy?
Dated: July 14 2020
There is a lot of discussions about which real estate investment strategy is the best. While this is entirely subjective, there are a few strategies out there that are more popular among investors. One of them is the buy and hold real estate investment strategy.
Buy and Hold Real Estate Explained
Buy and hold real estate investment strategy is quite popular. It merely means buying a rental property with the singular aim of a long-term investment. Such property may be leased out for a long time to generate long-term and short-term income. Short-term income is usually through monthly rent from tenants. The long-term income is only feasible if the investor holds the property long enough until it appreciates in value, after which they sell at a higher selling price. This is why this strategy is usually considered as the ultimate investment strategy among investors, especially those interested in long-term property investments.
This article, among other things, will highlight the pros and cons of this strategy and why it is more favored among investors.
Steady Cashflow and Appreciation Compared
The buy and hold real estate strategy offer steady cash flow and passive income, obtainable when the property is rented out to tenants. If the tenants are long-term, the monthly rent from such arrangements is a form of steady income. This money, in turn, goes into settling the mortgage. So, in a buy and hold real estate strategy, the tenants help the owner to gradually pay off the mortgage on the rental property until the buyer gets the full ownership.
This eventually builds equity in the investment property. This will only work if the buyer chooses the right tenants. Monthly rents are the best for such arrangements. Hence, it is advisable to go for tenants who can afford such. Such tenants must also properly use the property, such that there are no or little damages to the investment property. This helps the owner to save costs on repairs.
Appreciation is the long-term benefit of a buy and holds real estate investment strategy. If and when an investment property increases in value, it is said to have appreciated. Despite the known fluctuations of the real estate market, a rental property in a good location will most likely appreciate over a long period. A good location here means the places where the demand for rental properties is higher than the supply. The future worth of rental properties in such areas is always higher than the current value.
The extent of the appreciation is not fixed – sometimes, it maybe 2x or 3x the overall initial value of the property. The returns in this situation are usually significantly higher, if and when the owner decides to sell their properties in the future.
Tax Benefits Explained
It is important to note that there are tax advantages associated with long-term real estate investments. These are in addition to tax deductions that protect the income and increase the profit of the buyer. This is another benefit of the buy-and-hold real estate investment strategy – a long-term investment strategy. Investors can enjoy considerable tax deductions on their investment properties.
However, the extent depends on the state and local government regulations, property taxes, mortgage interest costs, and private mortgage insurance.
Real estate investment and inflation share a direct positive relationship. Inflation is a result of a rise in the cost of living. The higher the inflation, the higher the rental rates, as well as rental property prices. Fortunately, a property investor can benefit from inflation. First off, it means an investor can charge higher for rent. Likewise, the rental property will increase in value (or appreciate) to correspond to inflation rates.
Lastly, mortgage payments are hardly affected by inflation. The higher the inflation rate, the lower the mortgage payments. So, if you want to protect your real estate investment against inflation, the buy and hold strategy should be your choice property investment strategy.
If we consider all the points raised so far, it is clear that adopting the buy and holds real estate investment strategy can be one of the best ways to invest in real estate. Now you see why it is quite popular among investors.
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