When it comes to tax-favored investment classes, real estate ranks consistently high. This makes it one of the most popular types of investments to make. In fact, a recent survey found that 61.5% of high net worth investors are planning to allocate more money to real estate investments in coming years.
However, knowing which strategy to use can be the defining factor in whether an investment is a success or not. The buy and hold strategy can be used for a variety of different investment types. However, its approach is known to work particularly well with real estate.
Here’s an in-depth look at what the buy and hold strategy is, how it works, and what kind of financial and tax-related advantages come alongside it.
What Is A Buy And Hold Strategy?
There are plenty of different real estate strategies and the one you pick should reflect your personal goals and financial objectives. Similar to wholesaling or house flipping, the buy and hold strategy involves buying property, adding value to it, and then reselling it for profit.
However, what’s unique to this particular strategy is that the length of time between buying and selling tends to be longer. During that time period, the investor might rent it out or renovate it until market conditions are perfect for reselling.
It’s a long-term strategy that requires experience, discipline, resources, and patience. But for those who are able to stick it out, the return on investment (ROI) is well worth the wait.
Tips For Building Long-Term Wealth With A Buy And Hold Strategy
So how do you get the most out of a buy and hold strategy? If you’ve never attempted this kind of investment approach before or would like to find out more, here are six steps for you to follow.
- Assess the market – A great ROI starts with making a great investment. Sift through the market options within your budget and choose a property that you can see has potential for resale in future years.
- Assess the property you’ve chosen – Once you’ve selected and purchased a property, perform a thorough audit on its current value and note any issues that need fixing.
- Add value to the property – Find ways to improve the value of your property, both cosmetically and from an infrastructure perspective. Anything that will amplify its overall value
- Find great tenants – Next up, find tenants to rent out your piece of real estate while you wait for the perfect time to resell it. As always, select tenants with good references to minimize potential issues or damages and ensure as smooth a tenancy as possible.
- Sell when the moment is right – When your property is in the right condition to sell and you’re ready for the market to bite, you can put it up for sale. The exact timing of this will ultimately depend on the type of property in question and what the real estate market looks like at the time.
All in all, a buy and hold strategy is relatively simple. You buy a property (or several), add value to it, and bide your time holding until the perfect moment to resell.
The Advantages Of Buy And Hold
Buying and holding real estate is one of the most success-probable strategies you can use in the property market. And considering how lucrative the property market already is, the advantages that come alongside using this popular strategy are significant.
Consistent Passive Income
When you utilize the buy and hold investment strategy, you get the benefit of consistent, passive income via rental until you are ready to sell.
That means you can generate more money from the property overall. You just sit back, earn a passive income, manage the property at a distance, and then sell for profit when the market is ripe.
Significant Tax Benefits
There are many tax benefits that come with a buy and hold strategy. Through depreciation, you (as the property owner) can deduct the cost of improving the property’s value over the course of its usable life. You can also get tax deductions for:
- Legal and business equipment, office space
- Property insurance
- HOA dues
- Property taxes
- Advertising
- Travel costs
This makes the process of obtaining and maintaining real estate much easier and more lucrative. Any investment that involves significant tax benefits is a win.
Long-term Property Appreciation
Property increases in value over time, which is why real estate remains cream-of-the-crop when it comes to long-term investments. The buy and hold strategy is no exception. Even though there are costs in selling a property, these won’t eat up too much of your profits if you market at the right time and price.
Cultivates Generational Wealth
Because property is such a consistently in-demand and lucrative investment option, it makes a powerful tool for cultivating generational wealth. Real estate is one of the more straightforward assets to hand down to younger generations, allowing you to support your family financially decades down the line.
Provides Credit Leverage
When it comes to gaining credit leverage with the banking system, you’ll be hard-pressed to find a more solid asset than real estate. Buying property shows that you have consistent income and access to financial support, which can put you in a great position for loan and credit applications.
Supports Retirement Plans
At the end of the day, owning real estate is about security—both physical and financial. You’ll either be able to sell and make a profit off it or use it for yourself at a later point in life. Either option offers enormous advantages.
Multiple Exit Options
Another great point about buy and hold real estate investments is that you can easily shift the property if you no longer want it. There are multiple exit strategies available and plenty of real estate lead generation ideas available to help you find buyers if you want to drive the sale process. In any type of crisis, you can always go and live in it or sell it to profit and move on to your next project.
Conclusion
No investment strategy is perfect—and neither is buying and holding. However, this strategy has had a consistently high ROI track record across multiple different property types and economic seasons. If you’re looking for ways to build long-term wealth, this type of real estate investment will tick the right boxes.
