Buy and Hold "the best strategy for building long term wealth"

Josh Young · 2024-09-22T06:10:50-07:00

Investment Info: Single-family residence buy & hold investment. Purchase price: $480,000 Cash invested: $24,000 Purchased using a 5% down conventional loan. I bought this home and lived in it with my family for a few years before moving and turning it into a rental. The cash flow is okay, it's not great, but the principal pay down on this loan is over $10k per year, and this is a great location, so the property value and rental rate will continue to appreciate over time. What made you interested in investing in this type of deal? I have used this strategy several times, I buy as a primary residence and keep it as a rental when I buy another house and move a few years later. This strategy only requires 5% down, so I save my cash for reserves and other investments and it gets me the lowest available interest rate. Living in the home with my family also ensures that it's in a great area and allows me to make small improvements while living there. How did you find this deal and how did you negotiate it? I found this deal on the MLS and paid market value, I even increased my offer to get a concession from the seller to reduce my cash out of pocket and buy my interest rate down. I have found that over time the location and the terms are the most important things, the price is also important, but the location and terms are more important. How did you finance this deal? 5% down conventional loan with seller concessions to cover my closing costs and buy my rate down. How did you add value to the deal? I made a few small improvements to the landscaping, I bought a few new appliances, updated a few fixtures, added blinds to the windows, minor drywall repair/paint, and marketed the property as a 4th bedroom that would make great home office/den instead of a 3 bedroom plus office/den. What was the outcome? This is my 5th house in Gilbert and I plan to continue with this strategy until I get 10 houses. Lessons learned? Challenges? About a year or two ago I pivoted and started flipping and finding alternative strategies, but I have realized those cannot replace this strategy, they can be in addition to it, but I need to continue buying, moving, and keeping as a rental every couple of years because this really is the best strategy for building long term wealth. Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others? I am an agent and property manager, so I represent myself and manage my own properties. I also love helping others, so please reach out if you have questions or if you want help.

Drago Stanimirovic

New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 465 votes

2y

Hey Josh,

I really like your approach to buy-and-hold investing by purchasing primary residences and turning them into rentals over time. Leveraging the 5% down conventional loan is a brilliant way to minimize upfront costs while still gaining a foothold in appreciating markets like Gilbert, AZ. Your focus on location and terms over price resonates, these are often the most important factors for long-term success, and it’s clear you’ve mastered that.

I also appreciate how you made small improvements while living in the properties to increase their appeal as rentals. Those little upgrades can make a big difference in attracting quality tenants. Your strategy of re-marketing a 3-bedroom plus office as a 4-bedroom home office is a smart way to boost rental demand and rental income without major renovations.

One insight I’d add is the potential benefit of exploring cost segregation studies once you build a larger portfolio. It could help accelerate depreciation deductions, especially with your mix of single-family homes and duplexes. This could significantly boost your cash flow by reducing your taxable income in the early years of holding each property.

Also, as you approach your goal of 10 properties, consider looking into portfolio loans. As your real estate empire grows, consolidating loans into one could offer better terms and streamline management.

Overall, your method of buying, living, and then converting properties into rentals is a strong, scalable strategy for building wealth.

Keep up the great work, and feel free to reach out if you'd like to discuss financing options or new insights!

BR,

Drago

2 Reply

Raju Pothuraju

Investor · Springfield, VA · Member since 2015 · 35 posts · 6 votes

2y

Doesn't it get cumbersome to keep moving every two years? Also 5% seems low for a conventional mortgage… most require PMI if less than 20% down?

1 Reply

Albert Hasson

Investor · Paradise Valley, AZ · Member since 2012 · 366 posts · 214 votes

2y

Been in my home 20 years now. Can’t even imagine moving every couple of years. Glad your strategy works for you but to me your primary home isn’t an investment. It’s where you live and make memories.

1 Reply

Gregory SchwartzBusiness Member

Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes

2y

@Josh Young I love this strategy. So simple so powerful yet so many people will come up with so many reasons not to do it!!

I'm rooting for you to get to number 10!!!

[email protected]443-812-0357

Schwartz Realty Group5118 Reviews

Website View Page

2 Reply

Denis PonderPro Member

New to Real Estate · Yuma, AZ · Member since 2023 · 280 posts · 246 votes

2y

I plan to buy one, or two, more PR before I get to my forever home. But, every few years it a bit too often for me. I don't like to move that much. I try to find ways to force value into the home for a while before I move on.

1 Reply

Josh YoungPro Member

OP

Rental Property Investor / REALTOR® / Property Manager · Gilbert, AZ · Member since 2023 · 385 posts · 421 votes

2y

@Drago Stanimirovic thank you, and you are right I will probably do cost segregation studies at some point, but so far I have still been able to get to a loss on my taxes using the straight line 27.5 year depreciation schedules, I will probably do the cost segregation studies once I can't show a loss anymore, which will happen at some point as the rents increase and the amortization schedules shift to more principle and less interest.

@Raju Pothuraju we have moved into a nicer house each time, so moving isn't too bad. We know the area very well and only move a couple miles at the most, we actually just moved into a house in the same neighborhood as our first house. You are right 5% is very low, that's why we use this strategy (minimal cash out of pocket with the best available rate), you are also right that we have to pay PMI, but the PMI is minimal on a conventional loan if you have great credit, it's only about 0.2% of the loan amount per year, so I pay $72 per month on this one. The house I just bought last week with 5% down was $620k purchase and the PMI is $108 per month, so pretty minimal in the big scheme of things; I would't pay the extra $93k to save $108 per month, that's only a 1.4% premium.

@Albert Hasson no doubt any strategy you pick will have pros and cons, that's why most people never end up investing in real estate, they just focus on the negatives. Personally I don't mind moving into a nicer house every couple/few years, the house we just bought and moved into is super nice.

@Gregory Schwartz thank you, it's amazing the people I talk to who say they don't want to move. I like to ask them, "if someone gave you $40k to move would you? because that's basically what's happening with this strategy". That usually gets them thinking.

@Denis Ponder it's a great way to build a portfolio, even if you only do it a couple times it can be a powerful strategy. I like the idea of adding value as long as you don't spend too much cash and/or plan to do a cash out refi at some point to keep your cash working for you and getting a good return on equity; the biggest advantage with this strategy is the low down payment with the lowest available interest rate.

[email protected]802-274-8121

2 Reply

Denis PonderPro Member

New to Real Estate · Yuma, AZ · Member since 2023 · 280 posts · 246 votes

2y

Quote from @Josh Young:

@Drago Stanimirovic thank you, and you are right I will probably do cost segregation studies at some point, but so far I have still been able to get to a loss on my taxes using the straight line 27.5 year depreciation schedules, I will probably do the cost segregation studies once I can't show a loss anymore, which will happen at some point as the rents increase and the amortization schedules shift to more principle and less interest.

@Raju Pothuraju we have moved into a nicer house each time, so moving isn't too bad. We know the area very well and only move a couple miles at the most, we actually just moved into a house in the same neighborhood as our first house. You are right 5% is very low, that's why we use this strategy (minimal cash out of pocket with the best available rate), you are also right that we have to pay PMI, but the PMI is minimal on a conventional loan if you have great credit, it's only about 0.2% of the loan amount per year, so I pay $72 per month on this one. The house I just bought last week with 5% down was $620k purchase and the PMI is $108 per month, so pretty minimal in the big scheme of things; I would't pay the extra $93k to save $108 per month, that's only a 1.4% premium.

@Albert Hasson no doubt any strategy you pick will have pros and cons, that's why most people never end up investing in real estate, they just focus on the negatives. Personally I don't mind moving into a nicer house every couple/few years, the house we just bought and moved into is super nice.

@Gregory Schwartz thank you, it's amazing the people I talk to who say they don't want to move. I like to ask them, "if someone gave you $40k to move would you? because that's basically what's happening with this strategy". That usually gets them thinking.

@Denis Ponder it's a great way to build a portfolio, even if you only do it a couple times it can be a powerful strategy. I like the idea of adding value as long as you don't spend too much cash and/or plan to do a cash out refi at some point to keep your cash working for you and getting a good return on equity; the biggest advantage with this strategy is the low down payment with the lowest available interest rate.

Good point about the cash being stale and getting it out. I'm definitely thinking in terms of forced equity then a refi when appropriate.

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Buy and Hold "the best strategy for building long term wealth"

Buy and Hold "the best strategy for building long term wealth"

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