Diversify You Portfolio with Buy and Hold Investing

In many ways, investing can be as much an art as a science. Big data analytics can pull endless information from around the world to make predictions, but at the end of the day, no investment is a sure bet. That’s why any financial advisor worth her salt will tell you to diversify your portfolio.

If you’re a professional house flipper, real estate probably makes up the vast majority of your investments. That’s not necessarily a bad thing if you can stay on top of the market and keep your assets moving, but fix and flip profits, like any other investment, aren’t a sure thing. The market ebbs and flows, and sometimes the housing market simply isn’t favorable for fix and flip investments.

So, as you consider what portion of your capital to move into aggressive stocks and what portion to invest in bonds and mutual funds, don’t overlook that other, much more stable property investment: rental real estate.

Buy and hold investing is an ideal way to diversify your portfolio, particularly in the current market. Home prices have been on a steady rise for the last three years, and prices are expected to continue going up for at least two to three more years. At the same time, rent prices have also gone up around the nation. People are paying a higher portion of their income in rent right now than ever before, and yet, many people who could buy are still choosing to rent.

As a result, the market is primed for rental real estate investing. According to new data out of the US Census Bureau, 14.9 million single-family homes were inhabited by renters in 2013. That’s a 31% increase since 2006. Vacancy rates are extremely low, particularly in major metropolitan areas like San Francisco, Dallas, Houston, and Los Angeles.

For buy and hold investors, this all means earnings anywhere from 5% to 15% on property investments every year and monthly rental income from tenants. Plus, as landlords buy and hold investors get the benefits of numerous tax breaks.

Of course, a buy and hold investment isn’t a perfect investment. If the market turns, rental properties can be hard to unload quickly, and there’s always the chance that you’ll end up with bad tenants or a temporary vacancy. That said, investing a portion of your capital in buy and hold real estate is generally a low-risk, high-reward choice.

An added benefit of rental real estate is that you don’t have to do the work of a landlord in order to profit. Countless property management firms are ready and able to manage your properties and collect rent on your behalf for a reasonable fee. Some real estate firms will even search out potential rental properties on your behalf, completing the purchase and management of the property for you. But that will cost a much larger fee. (This is a popular route for foreign investors, often from China, who are interested in the US housing market.)

We’re not saying you should sell all your stocks and become a landlord full time. However, if you are looking for a new way to diversify, you’ll have a hard time finding an opportunity with a better risk/benefit ratio than buy and hold investing.