Buy and hold
BUY AND HOLD REAL ESTATE INVESTING
Buy and hold investing is for people who would like to purchase real estate and hold on to it for years to generate cash flow.
Buy and hold investments may include rental properties, commercial buildings, vacation homes, and/or real estate investments made through a self-directed IRA/401K.
The major benefit to buying and holding real estate lies primarily in the appreciation of the property over time and the rate of return, which is multiplied, thanks to leveraging, providing much better gains than stocks or bonds.
For example, if you received an identical 8% annual returns on your stock portfolio and your real estate holding, you’d still come out ahead with the real estate investment. Why? If you use some type of real estate financing, you haven’t invested 100% of the price of the real estate.
If you had a stock portfolio that was funded with $100,000 over your personal funds, and it appreciated by 8% a year, at the end of a year, you would receive an $8,000 bump or an 8% rate of return on your money.
But if you used that same $100,000 for a down payment on a real estate investment, you would be able to buy a $500,000 property. Assume the property also appreciated at an 8% rate, at the end of a year, you’d have $40,000 in equity or a 40% rate of return on your money. BAM!
Even if the property fails to appreciate and the price stays flat over the years (with its appraised value not rising or falling), in 15 or 30 years (depending on the terms of your loan or mortgage), your tenants still would have paid down the loan (not you!) and would own the property outright.
Many savvy real estate investors use a buy and hold strategy to acquire properties that provide them with a positive cash flow today, as well as retirement income when they are ready to sell.
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