If you’ve thought about purchasing real estate as an investment, here are a few brief reasons why a “buy and hold” strategy might be one of the best investment decisions you can make.
- Depending on factors like where you buy and how much money you put down, your property is, at some point, going to cash flow. Even if you have put money into it after closing, and even if you hire management, if you’ve purchased in a good area your property is eventually going to make you income. And if you hold onto it well after your mortgage is paid, that income will be a nice retirement income supplement.
- Your real estate value is going to appreciate. Sure, there are market cycles and as history shows, some of them can dive deep, but over the long road real property is in an asset class that appreciates. If you’re a savvy investor, you can make informed decisions based on your analysis of market appreciation trends.
- You’ll get tax benefits for property depreciation and deductions for mortgage interest and mortgage insurance. Plus, you can sometimes defer tax liability indefinitely by continuing to invest funds in new properties.
- Rental payments will pay off your principal slowly at first and then more quickly as loan amortization speeds up, and in the long run you’ll own your property.
- Buy and hold is a high-leverage investment where you use someone else’s money to finance your purchase. If it’s done right, your return on investment can be high, in part because appreciation affects the whole property and not just your down payment.
Of course there are a lot of “ifs” to buy and hold—if you’re willing to hold property for 30 years, and if you buy in a city that’s stable or even progressing (Columbus was the No. 10 fastest-growing “big city” in the 2013 U.S. Census results), and if you hire a top-notch residential property management company to handle the day-to-day for you, you can build wealth over time. There are will always be those investors who think the stock market is a wholly better option even though nothing is guaranteed there, either.
But people will always need housing. Great investors put their money into things people will always need, they do it the right way, and they have patience even in down markets to realize maximum results in the end.