The 5 Steps of Buy-and-Hold Real Estate Investing
One of the best ways to diversify your investment portfolio is to buy-and-hold real estate properties. You’ll be able to yield short term gains and long term appreciation with the right property. When you’re first considering adding a buy-and-hold property to your investment portfolio, you should do your due diligence before jumping in.
What is buy-and-hold real estate?
Buy-and-hold real estate is when you purchase a property with the intent to hold onto it for an extended period of time. Investors that are interested in this type of investing, will want to calculate any potential income they’ll receive from renting out the property by calculating its cash flow. If the monthly revenue of the property exceeds the expenses (mortgage payments, interest, taxes, maintenance costs), then you will have positive cash flow and it’s generally a good idea to think about investing. You should also consider your potential profits when you eventually sell the property. The bottom line of buy-and-hold real estate is that the value of the property will appreciate over time, especially in up-and-coming neighborhoods, giving you a high payout when you eventually sell.
Buy-and-hold real estate in 5 Steps:
Find the Right Property
It could take some time, but it’s crucial to find the right property. If you’re looking to rent to families, consider buying in an area with good school districts. If you’re marketing towards millennials, make sure you’re in an up-and-coming area that’s close to public transportation. Wherever you land, be sure to take into account the purchase price, as well as the price of any upgrades you’ll need to do.
Finance the Property
There are many ways you can finance a rental property, whether it’s through traditional lenders, hard money loans, private money, partnerships, or more. While all of these types of loans can offer different pros and cons, it’s suggested to consult with a financial advisor to see what the best type of loan is for you and your rental property project.
Once you have the property, it’s smart to perform upgrades to appliances, paint the interior walls a neutral color, improve the kitchen and bathrooms, and install smart home devices. By making small, subtle upgrades, you can increase the rent, widening your margin of income.
Manage the Rental Property
The main reason investors will stray away from renting out a property is because of the horror stories they’ve heard about tenants. The best way to avoid an issue is to have high standards, check credit and rental history, and keep a positive relationship with your tenants once they’ve moved in. Keeping up on minor issues and replacing things like filters in a timely manner can help prevent any major issues.
Prepare for the Unexpected
Seasoned investors know that things can change with your rental property in a moment’s notice. A pipe can suddenly burst or a tree branch can fall on the roof after a particularly bad storm. It’s not uncommon to go months without an issue and then have a major expense out of nowhere. Maintaining a healthy reserve fund is crucial to being able to pay for these expenses.
Is buy-and-hold a smart investment?
If you have well-planned business and financial goals, then yes, this long-term investment strategy is a smart choice for investors. Buy-and-hold real estate can yield high profits when done correctly, but investors should always do their due diligence before committing to a property.
When you’re ready to look into investment opportunities for buy-and-hold real estate investments, contact Renovo and talk to one of our team members to discuss how you can continue to grow your rental investment portfolio despite the current market.