Long-term rental properties are considered one of the best ways to diversify any real estate portfolio. If done properly, buy-and-hold real estate can provide both short-term gains and long-term appreciations.
You are at the right place if you also want to know about buy-and-hold real estate investments. In this blog, we will discuss how to buy and hold real estate investments in 5 steps to help you get started.
What Is Buy And Hold Real Estate?
Buy-and-hold real estate is a long-term investment strategy in which an investor buys and keeps a property for a long time. The owner usually plans to sell it later but rents it to help with the financing.
Rent from property generates short-term income that can be used to pay off the mortgage. The property value will increase over time, allowing investors to profit when they are ready to sell the property.
Buy And Hold Real Estate Investing in 5 Easy Steps
A well-crafted buy-and-hold real estate investment plan can guide every process step. Keep the following steps in mind as you identify the market you want to operate in:
1. Find The Right Property
Always try to get the best deal when buying property, whether buying it to rent out or fix up. Negotiate like you’re buying a rental property because your monthly cash flow will depend on the purchase price. Finding the right property is more important than the price.
Not all houses make good rental properties. Look for areas on the rise, tenant-friendly layouts, and competitive prices—research area rental properties before making an offer.
2. Finance The Property
One great misconception about buy-and-hold financing is that you cannot use hard or private money to make a purchase. Buy-and-hold properties offer the same financing methods, just structured a little differently. You can still use any of the following buy-and-hold real estate financing options:
- Traditional Lender Financing
- FHA Purchase Loans
- Hard Money
- Private Money
- Seller Financing
- Partners
Traditional financing for real estate requires a credit check, application, and down payment of up to 20%. It may have higher interest rates than other methods.
FHA loans allow a 3.5% down payment on investment properties. You can buy up to a 4-unit property if you live in one unit. You can live in one unit and rent out the others until you can move on.
Hard money can be used to finance a buy-and-hold property. There is a minimum waiting period of 90 days to refinance, but this can vary depending on the lender. After six months, you can refinance, repay the loan, and continue holding the property.
Private money and partners can help you buy and hold real estate. To secure funding, prepare a strong deal analysis with numbers. Case studies help—network at real estate events to find lenders and partners.
Be creative—there are many ways to buy and hold loans.
3. Upgrade The Property
To improve the value, buy-and-hold properties and rehabs are similar. These homes frequently sell for nearly the full asking price. You must be willing and able to put in some work if you want a decent buy-and-hold deal. Make the house desirable to live in without giving it a complete makeover. You should update the flooring, paint the walls, and improve the bathrooms and kitchens. You must include these costs in your budget before submitting an offer. With these minor modifications, you can raise your rental amount by 25 to 30 percent.
4. Manage The Property
Investors avoid buy-and-hold investments due to the horror stories they have heard about tenants. However, nine out of ten tenants are usually excellent. Working with property management is the best method to prevent your property from becoming a nightmare. You must have a plan before you buy, regardless of whether you choose to take this path or manage the unit yourself. You cannot simply find a tenant and anticipate receiving monthly rent payments. Maintaining a rental property requires significant time, patience, and work. Long-term benefits are fantastic, but getting there requires managerial abilities and commitment.
5. Prepare For The Unexpected
A rental property’s conditions might change at any time. You praise your tenants one day for making timely payments, and the furnace fails the next day. It is normal to go several months without problems before being suddenly hit with two or three major expenses. Keeping a strong reserve account is crucial to preparing for such unexpected events. Without reserves, you’ll have to look for money to buy these things. This can be from personal cash, high-interest credit cards, or money set aside for other initiatives. Additionally, it might lead you to manage the property in a way that turns away qualified tenants and ultimately costs you more money.
Summary
What is buy and hold real estate, investors wonder? Hopefully, you can see how adding one or two buy-and-hold properties to your portfolio each year can significantly improve your returns. Thankfully, getting started with them is easier than you would imagine. To get you started in the correct direction, adhere to these five steps. Buy-and-hold real estate can quickly replace other investing specialties as your new favorite.
Our professional investment experts can help you choose the best real estate investment plan. Visit Think Beyond Construction for more insights about real estate investing!
