For many new investors, the buy and hold real estate strategy is one of the most popular investment opportunities. It can bring many benefits if you are willing to hold onto the property for an extended time. For instance, buy and hold real estate strategies offer both short term cash flow via rental income and long-term gains as the property appreciates over time.
Purchasing the right buy and hold real estate property can set you up with a steady income stream to keep you financially secure through retirement and beyond.
Create a Buy and Hold Real Estate Plan
New investors looking to get into the buy and rent real estate market need to prepare for a few things. It is wise to create well-planned business and financial goals before diving into the buy and rent real estate market. Here are a few suggestions:
Calculate the potential income you will get from renting out your property. When you are doing your calculations, consider the mortgage payments, taxes, interest, fees, and maintenance costs.
You will also need to prepare yourself to be a landlord and stay focused throughout the good and bad times. Can you handle covering the mortgage payment if the property is not turning a profit?
As a landlord, you will have to take on property management duties. Dealing with tenants and managing rental properties can take a big chunk of your time and requires a great deal of patience and dedication. You may have heard nightmare stories about unruly tenants. You may be able to avoid any unwanted stress by working with a property manager or property management group.
Pick the Right Property
Picking the right investment property in the right neighborhood plays a significant role in how much profit you will make. You can minimize your investment risks by identifying your target areas’ vacancy rates and property depreciation. Do some research and look for income-producing properties.
Consider the location of the property. Tenants keep the cash flow steady, which means you will want to look for homes that are conveniently located. Keep an eye for areas where there is positive job growth and expanding industry. Are people moving into the target area or leaving?
You may want to consider slightly distressed buy and hold real estate because you are more likely to find these properties at a reduced price. Give the property a bit of a face-lift, so it is livable and attracts tenants. Factor in expenses like flooring updates, wall painting, and kitchen and bathroom improvements into your budget. However, you don’t need to go through a complete home makeover.
Financing Buy and Hold Real Estate
Besides finding the right property, financing buy and hold real estate is one of the new investors’ most significant challenges. Try to use any of these buy and hold real estate finance options:
FHA Loans: While an FHA loan may be harder to get if it’s not your primary residence, you can still use this type of loan for something like a 4-plex unit, as long as you reside in one of the units. New investors may use an FHA loan and place a 3.5 percent down payment to purchase the property.
Traditional Lender Financing: If you have an excellent credit score, traditional lender financing can be a good option. Consider some things if you are going the traditional lender financing route: some may require a 20 percent down payment or higher. There may also be higher interest rates than some of the other financing options available.
Hard Money: Another opportunity new investors can use to finance buy and hold real estate is to use hard money. Since it is a loan, you will have to wait anywhere from 90 days to a full year before refinancing to pay off the loan.
Business Partners and Private Money: New investors can get their foot into buy and hold real estate if they can secure funding from business partners and private money. If you don’t know too many lenders and partners in your area, try networking at local real estate events.
These are just a few of the financing options available for buy and hold real estate. If you are creative and determined, you are bound to discover other ways to access loans for your buy and hold real estate investment.
Are you ready to take the plunge and start taking advantage of buy and hold real estate strategies? Investing your money in buy and hold real estate can be a wise investment if you know what to look for.
Once you have secured your funds, try real estate auctions to get the best possible price. Using a reputable real estate auction platform allows you to bid on various properties in specific target areas to get the most out of your investment.
Please note: The writers’ opinions are their own and do not constitute any advice on real estate investing. The content should not be relied upon for any investment activities. We recommend performing your own independent research or speaking with a qualified real estate investment professional before making any investment decisions.