Out of all the ways to invest in real estate, buy and hold is the one that we champion as the best way to invest at any skill level. But why? After all, there are so many different strategies available when it comes to real estate investment. Even within a buy and hold model, there are different types of properties to invest in and sub-strategies to consider: like turnkey real estate.
But what makes buy and hold the crème de la crème of real estate investing? What makes this strategy stand the test of time, the ebb and flow of the market, and many, many investment mistakes?
Keep reading to find out.
One of the biggest advantages of the buy and hold method is simply its stability and reliability over time. Buy-and-hold investors aren’t beholden to the ebb and flow of the real estate market. If there is an economic downturn or a market crash, buy-and-hold investors can “ride it out” rather than lose a profit due to poor timing.
Not only this, but the cash flow created through rental income means that you don’t solely rely on appreciation and eventual equity. Instead, you can earn passive income through your properties, allowing you to more easily expand your portfolio over time and tackle other financial demands.
For an investor, populating your portfolio with this kind of stability is key to long-term success.
In real estate, equity is one of the most attractive benefits. Equity is the difference between a property’s market worth and the amount still owed to the lender. Historically, equity in a home has been one of the biggest selling points in personal homeownership. However, it is much more difficult to build and maintain equity in a personal residence. Wear-and-tear calls for consistent maintenance and renovations — something that homeowners don’t always excel at.
By contrast, investment properties are carefully kept by maintenance and management teams. As a result, equity grows along with forced and natural appreciation!
Buy-and-hold investors are usually passive investors. This is because buy-and-hold properties don’t demand much of the owner in terms of operations or administrative duties. A flipper, on the other hand, needs to be boots-on-the-ground and heavily involved in buying, renovating, and selling near constantly.
This creates a demand to work only in one’s local market — which may or may not be ideal. When you invest buy-and-hold, however, it’s much easier to leave those tasks to a management team (or better, a turnkey partner). What this does is open up investment opportunities all over the place!
Because you are not constrained by your own physical presence and ability, you can pick-and-choose the markets that best suit your goals, resources, and risk tolerance.
One of the biggest tax benefits afforded to buy-and-hold investors (and a huge advantage over other types of investments) is found in the depreciation of the property. This is a tax benefit you can enjoy for 27.5 years! In essence, you can take a newly acquired property (and line items like new appliances) and write them off on your taxes due to their depreciating value over time. For this, we definitely recommend consulting a tax professional.
Real estate depreciation is one of the best tools at your disposal. It will reduce your taxable income based on perceived (not necessarily actual) depreciation of your property.
Be sure to check out: A Quick Guide to Tax Benefits Every Real Estate Investor Should Know!
The “Hands-Off” Strategy
Ultimately, what makes buy-and-hold such a great investment strategy is that it is so flexible and versatile. If your timelines change, it’s fine — you still have a portfolio that generates passive income. You aren’t stuck making choices between investing and a career or investing and family, or hobbies!
Yes, investing in real estate (even turnkey) does demand some of your time and direction. This strategy, however, allows you to truly invest on your terms and your timeline. Because you leave the heavy-lifting to the professionals, you have time to focus on what you’re truly passionate about…all while building equity and earning passive income.
Investors can be buy-and-hold without being turnkey, but we don’t recommend it. Again, your own personal limitations can leave you wrapped up in the daily minutiae of investing. With a turnkey provider by your side, you can truly invest on your own terms. Our team of experts will handle it while you focus on what you really care about!
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