Buying and holding real estate is one of the best investment strategies that can lead to systematic wealth building and increase your net worth. I have been applying this buy & hold strategy long term for over 30 years with lucrative results. And while acquiring and accumulating properties can become a full time business, most buy and hold property owners are passive investors that defer to property managers and are in it for the long haul. Below are several key benefits to this real estate approach.
A. Positive Cash Flow
Holding real estate and renting out your units can bring steady passive income for years. The more involved you are in the management of your properties, the greater the profit. But the important thing is you have the flexibility to be as involved at the level in which you are comfortable.
Regardless of past real estate market down turns, real estate has historically increased in value. The median price of an American home in 1950 was $7,354. Fifty years later, in 2000 it was $119,600. This year the current median home price reported by the National Association of Realtors was $232,500 surpassing the 2006 record of $227,100. Yes, there are market cycles, but you ride right through them consistently collecting rent on a regular basis.
C. Principal Payoff
Another often missed benefit of investing in real estate is the fact that even though your tenants are providing you positive income, they are also paying off the principle amortization on your mortgage loan. Over the years, the rent payments shave off thousands until your loan is paid and you own the property out right.
D. Tax Advantages
We are all tax payers and we could use the plethora of tax deductions that income properties provide such as; deductions in mortgage interest, mortgage insurance, maintenance costs, home improvements and even deduct depreciation on the actual house. Furthermore, you can defer tax liability on the sale and purchase of a new property with a 1031 Exchange.
E. Financing Power
As you accumulate real estate wealth, your opportunities to apply high level leverage financing to purchase other residential properties or larger commercial properties will continually expand your portfolio. The equity in one property can be used to purchase another income property as your net worth grows exponentially.
F. Return On Investment (ROI)
ROI = Net Profit / Cost of Investment. Eventually your ability to leverage cash for investment properties will increase your ROI as will appreciation on your properties. The appreciation amplifies your return. This is because the entire asset appreciates rather than just the down payment money you invested.
Rents have been increasing for decades. Most rental market analysts predict rents will continue to climb based on many factors, most of which keep people from purchasing a home. Increasing rents based on market demand also increase your ROI for years into the future.
Guard Against Inflation
As inflation rises, owning real property, especially at these historically low interest rates is a great way to hedge against inflation. If prices rise, so will the cost of housing and as a result, owning an asset that is rising with inflation is a super way to protect your wealth!
Ultimately for those investors who buy and hold for the long term, the rewards are great. Over a 20 to 30 year period an investor can own several properties outright which maximizes rental income to a point of sustainability and push their net worth into the millions of dollars. This positive cash flow from income properties combined with, 401Ks, 403bs, pensions and Social Security can increase your standard of living to the point where your golden years are truly golden.
Unlike stocks, bonds and other paper investments, real estate is tangible and can have a great deal of personal meaning when passed on to your heirs. For those who inherit your properties, they can continue your legacy and profit for years. All the while, knowing you are making a fulfilling positive impact on your family long after you are gone. Those properties are a constant reminder of you and your prized estate, so make sure you protect them by creating LLCs and securing them in a Trust.
By Nick Karantinos, Real Estate Agent With Team Red Brick For more details regarding Buy and Hold Strategies, contact Nick or any of our Team Members at www.TeamRedBrick.com