When it comes to real estate investing, the buy and hold strategy is one of the most popular options. This is because it offers investors a relatively stable way to make money in the market while minimizing risk. In this blog post, we’ll discuss some key factors you need to consider if you’re thinking of buying a buy and hold property for your portfolio.
A buy and hold property is simply a real estate investment you purchase with the intention of holding onto it for an extended period (usually at least five years).
Investors typically consider two income goals when purchasing a buy and hold property.
The first goal is to generate positive cash flow from the property each month. This means your rental income should regularly be greater than your monthly expenses (mortgage payments, taxes, insurance, etc.) in order to achieve a positive cash flow.
The second goal is to see the property’s value appreciate over time. This appreciation should give you a nice investment return when you eventually sell the property.
Now that we’ve covered what a buy and hold property is and what investors typically want to achieve with this type of investment, let’s discuss some key factors you need to consider before purchasing a buy-and-hold property.
#1: Your End Goal
You’ll want to consider your goals for owning a buy and hold property. Are you looking to generate positive cash flow, or are you more interested in seeing the property’s value appreciated? Or both? Knowing your end goal will help you develop a clear strategy for your investment portfolio.
#2: Location, Location, Location
One of the most important things to consider is the location of the property. You want to make sure you’re investing in an area that’s growing and has a strong economy. Otherwise, you may have difficulty finding tenants and generating positive cash flow.
#3: The Type Of Buy And Hold Property You Want To Purchase
It’s also important to consider the type of property you’re interested in purchasing. For example, single-family homes are typically easier to manage than multi-family properties. They’re also more affordable for solo investors. However, they also tend to appreciate at a slower rate than multi-family properties.
#4: The Property Itself
Of course, you’ll need to consider the property itself. You want to ensure you’re buying a quality property that will be easy to rent out and require minimal repairs. This is why it’s crucial you hire a professional inspector to inspect the property before purchasing it.
#5: Your Financial Situation
This might sound like a given, but it’s also important to consider your financial situation. You need to make sure you have the cash flow to cover the mortgage payments and other expenses associated with owning a rental property. In addition, you’ll need to have some savings set aside for unexpected expenses and if you’re planning to rent the home, you’ll need to ensure you’ll still be able to pay your bills if you experience extended vacancy times.
#6: How You’ll Pay For It
Another critical factor to consider is your financing options. You need to know how you’ll finance the property purchase, and, in most cases, you’ll need to have a down payment saved up to do so. While some investors finance their properties using traditional methods, you may also consider using creative financing methods, such as seller financing, owner financing, or using a private lender to make the purchase.
#7: Your Management Style
Last but not least, you need to consider your management style if you plan to rent the home. Are you willing to be a hands-on landlord, or would you prefer to hire a property manager? If you’re going to be a hands-on landlord, you’ll need to factor in the time and effort required to manage the property to ensure you can handle the additional workload. If you plan to hire a property manager or contract the management out to a professional management company, you’ll need to consider the costs associated with this as well.
The truth is that there are a lot of things to consider when deciding whether or not to invest in a buy and hold property. You need to think about your goals, the current state of the market, your personal financial situation, and several of the other factors we discussed in this blog article.
If you do decide to invest in a buy and hold property, then you’ll want to start thinking about how you can maximize your return on your investment. We’ve outlined several suggestions, tips, and tricks that you might want to consider in “Part Two” of this two-part training article series. In our follow up article, we’ll also discuss some of the complications that can eat into your profits and what you can do to mitigate those risks.
Read Part Two Here:
(Part Two) The Truth about Buy and Hold Properties: How to Maximize Your Return
Do you have any suggestions for other things that real estate investors should consider before purchasing a buy and hold property? Share them in the comments below!