As the world population continues to grow, the demand for real estate also increases. In 2021, the worldwide market for real estate reached a value of $3.69 trillion. It is predicted that the market will continue with a compound annual growth rate (CAGR) of 5.2% starting 2022 until 2030. This provides a great opportunity for real estate developers and investors to expand their investments or for new investors to enter the market and earn profit.
When it comes to real estate investing, there are different strategies that you can use. One of the most popular is buy and hold. This approach involves buying a property and holding on to it for the long term. Some investors often choose to do this to rent it out. Given this, here’s what you need to know about buy and hold as an investment strategy:
Benefits of Buy and Hold as a Strategy
When it comes to buy and hold, one of the key benefits is that it’s a relatively low-risk strategy. This is because you’re not constantly buying and selling properties, which can often be a volatile process. Additionally, this strategy can also lead to several tax benefits. For instance, if you’re holding on to the property for more than a year, you may be eligible for long-term capital gains tax rates, which are often lower than short-term rates
Furthermore, another benefit of this strategy is that it can provide a source of passive income. This is one of the key reasons why many investors choose to go down this route. When you rent out your property, you’ll receive regular payments from your tenant or tenants. This can provide you with a steady stream of income, which can be helpful in covering your mortgage payments and other associated costs.
Buy and Hold Process
When it comes to this strategy, there are a few key steps that you’ll need to take. First, you’ll need to find a good property to invest in. This means doing your research and finding a location that has potential for growth such as an up-and-coming neighborhood. Suppose you’re investing a significant amount into your strategy. In that case, you’d want to find real estate properties with good infrastructure and a desirable location. For example, the property should be near public transport, schools, and other amenities that many individuals and families often look for when looking for their new home. This would make it easier for you to find tenants and generate rental income.
Once you’ve found a property you’re interested in, the next step is to negotiate a good price. This is where having a good real estate agent on your side can be helpful. They’ll be able to help you get the best possible price for the property. Once you’ve purchased the property, the next step is to carry out any necessary repairs or renovations. This is often a key part of getting a property ready for rental. After that, you can then start the process of finding tenants and collecting rent.
Preparing for the Long-term
If you’re planning on using the buy and hold strategy, it’s important to be prepared for the long term. This means having a good understanding of what you’re getting yourself into and knowing that it may take some time to see results. It also means being patient and not selling the property too soon. Often, it takes a few years for a neighborhood to really change and develop. If you sell too soon, you may not make the profit that you’re hoping for.
Additionally, you’ll need to have the financial resources in place to cover any associated costs. If you’re renting out the property, you might need to have repairs if the tenants damage the property. For example, if there’s a fire or flooding, you may need to pay for the repairs. Additionally, you’ll also need to factor in the cost of vacancy rates, property taxes, insurance, and other associated costs. Having a buffer in place can help you cover these costs and ensure that your investment is successful in the long run. You can prepare buffers by setting aside money from each rental payment or by taking out a line of credit.
Overall, buy and hold is a popular investment strategy for many individuals. If you’re thinking of using this strategy, it’s important to be aware of the key steps involved as well as the benefits and drawbacks. With that being said, if you’re prepared for the long-term, this can be a great way to generate passive income and build your wealth over time.