What is a Buy and Hold Real Estate Strategy?

You may not be familiar with the term “buy and hold investing,” but you’re almost certainly familiar with the concept. Buy and hold investing or rental real estate investing is simply the process of purchasing a single-family home or an apartment complex for the purpose of renting it to tenants. Some people buy such properties and hold onto them for decades, but in a typical buy and hold investment, the property is held onto for a period of four to six years, long enough for the home value to jump anywhere from 3% to 10%, year-over-year.

The great thing about a buy and hold real estate strategy is that it provides you with passive monthly income via the rent you collect. Unlike other types of investments like the stock market, buy and hold investments pay regular dividends in addition to the lump sum payout you get when you ultimately resell the property. Plus, you have a lot of control over when you choose to resell, which can allow you to wait out slumps in the housing market. These factors help make buy and hold investing one of the best risk-to-reward investment options.

Is Now the Right Time for Buy and Hold Investing?

Many property investors are moving away from fix and flip strategies toward buy and hold investments for a number of reasons. First of all, homeownership is at a low point for the last ten years, and the numbers aren’t showing many signs of picking back up soon. Plus, home prices are on the rise around the country, and so are rent prices. According to the February 2015 Rent Report out of Zumper, rent prices have gone up as much as 10% in some of the top 50 housing markets during the last quarter compared to the same quarter last year.

In San Francisco, rent on a one bedroom apartment has gone up 3.3%, quarter over quarter, to an average price of $3,460. That’s the highest in the country. But things aren’t much better in other major housing markets. In New York, rent on a two bedroom apartment has gone up 2.9%, quarter over quarter, to $3,600. In Los Angeles, rent on a one-bedroom apartment has gone up 4.1% to $1,760.

Rent prices continue to go up because demand remains high and vacancy rates are extremely low. In other words, landlords in the current marketplace are doing extremely well.

With a buy and hold investment strategy, you can reap the benefits of being a landlord. Plus, if you don’t actually want to be a landlord, you can hire a property management company to oversee your rental properties for you. With so many benefits and low overall risk, there’s no reason not to consider rental real estate investing.

Getting Started with Your Buy and Hold Investment Strategy

The first step to becoming a buy and hold investor is researching buy and hold loans. Once you’ve found a private lender with a solid reputation and agreeable lending terms, you can begin looking for your ideal investment property. Considerations you’ll want to keep in mind will include neighborhood, potential tenants, proximity to good schools and amenities, local property taxes, and proximity to your own home.

Remember that the research before you buy is the most important part of the entire process, so take your time, learn everything that you can, and be sure to make the right investment choices upfront.