If you've managed your way to this blog, you fit into two likely categories. Either A) You already know the great benefits of buy and hold rental properties and are searching for more investments or B) You're interested in the idea of real estate investing but maybe not quite sure what buy and hold investing is. Either way, you've come to the right place.
But of those that fit more into the B category above, let's discuss buy and hold real estate investing a bit more.
First, the main concept is all in the title: buy and hold. You buy the property, then hold it as a long as possible. (Same concept many stock investors use). In this type of real estate investment, you're banking on at least one thing (if not two). The main goal is to rent the property to tenants who are not only going to cover any mortgage payment you may have on the property plus additional expenses, but there is going to be an excess resulting in cash flow or mailbox money. A secondary goal for some, not all, is to buy in appreciating areas so one day, your home not only paid you all those years through cash flow, but it's also grown in value and is now worth much more on re-sale.
(Note: There are hundreds of concepts, strategies, numbers, etc. to review, talk about, discuss, etc. [lots of etc. too] However, we're scratching the surface here and there's plenty more to go over in the future.)
Buy and hold real estate investing, sometimes referred to as turnkey real estate investing, can be boilded down to one sentence in how it works: a tenant pays a monthly rent amount that covers your mortgage (principal, interest, taxes and insurance), property insurance, reserves for maintenance, capital expenditures and vacancy, as well as other fees like property management, plus pays you a return or profit after all expenses are paid.
Yes. Really. That's how it works. For a quick review of numbers, here's a rough example. A $100,000 home rents for $1,000 a month (we'll cover the 1% rule later but it's important). Out of that $1,000, you pay $100 to property management, pay $75 for property insurance, set aside $100 for capital expenditures and maintenance, and then pay your $500 mortgage payment. That totals up to $775. Once you pay all those expenses, you end up with a monthly paycheck of $225.
Now. For those that haven't invested in real estate in this way before you might be thinking, "$225? That's it? What's the point?" Well my question to you is, what paycheck amount are you getting monthly from your 401K? I'll wait...
The answer is zero. That's why buy and hold real estate investing is different. It not only appreciates in value, and will always have value, but it PAYS you each month.
Alright. That's the rough view. There are far more items to dig into there like how a 4-unit building could result in $800 per month in cash flow or more for not much more of an investment. Or how you could BRRR a property and can keep much more equity in your pocket resulting in a better return on investment. Don't forget purchasing turnkey properties for those who are busy professionals and don't want to deal with fixing up a property.
We're going to dig into more. In a nutshell though, buy and hold real estate investing offers these huge benefits:
Compounding Appreciation (Your property is going to be worth a lot more one day.)
Tax Benefits (Real estate is one of the most beneficial assets in terms of taxes.)
Building your Net Worth
Hedge against Inflation (As it appreciates, it outruns inflation instead of just keeping up.)
Ways to Diversify your Investment Portfolio
Passive Investing (for the most part)
Easy to Resell (Lots of buyers for single-family homes.)
Use Traditional Financing (You don't have to have millions to invest.)
Investing outside your Hometown (With current technology, investing out-of-state in great markets is easier now than ever.)
More Control (You control how, when and where you invest and when you want to sell.)
Too much info? That was just a bucket full. There's tons more. Stay tuned. We will cover it all.
Have a specific question or something you want to know about? Contact us! We'd be happy to cover it.