As a Buy and Hold Investor for 10+ years I have seen a lot of things, made some mistakes and met a lot of people in the real estate business. This collection of experience has lead me to form an opinion on what makes a Buy and Hold Investor Successful. In this article I will focus on 3 characteristics or strategies that I find are key to long term success in Buy and Hold Investing.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
You Make Money When You Buy
The first thing I want to discuss is the standard statement of “You make your Money when you Buy.” When I started investing I thought I knew what this meant but in reality I had no clue. I got lucky because we were buying property in a rising market and thus, “luck” insured we were well taken care when we started investing.
I don’t know about you but I don’t believe in “luck” as a business strategy. I will take all the good luck we receive, but I will never count on it. After 10 Years of investing I have a much better understanding of the statement that you make your money when you buy.
The first thing to understand is the purchase price of a property is only one factor that can drive making money when you buy. In fact, I think the really good investors look for opportunities where creativity and deal structure will drive the best value, as anyone can write up a low ball offer and on occasionally get it accepted.
I like deals where I can create value by addressing problems with the property, such as finding those with lots of deferred maintenance or with a general low quality of the property. In addition I like to find properties that can be bought with one configuration but which can quickly be converted to another. For example I will buy all of the 2 Bedroom, 1 Bath Houses that I can turn into 3 Bedroom, 1 Bath houses. The math is great when you can buy a 2 bedroom and then rent a 3 bedroom.
Lastly I like to find deals where I agree to a price that I think is high but put together a financing structure that is very beneficial. For example, maybe I get the seller to finance the property at a low rate or I get the seller to take back a second mortgage at zero percent interest.
In the end as a buy and hold investor I want to maximize my yield of the asset and price is only one factor that controls making money when you buy.
Fast Occupancy and Low Turnover
Second, I want to ensure Fast Occupancy and Low Turnovers. One of the components of buy and hold investing that I enjoy the most is reviewing a distressed asset and envisioning how we can turn it around quickly.
As a buy and hold investor one of your most important tasks is to quickly attract tenants and then ensure they stay as long as possible. This means that I generally fix the exterior first and I put in a sizzle feature or two that will force prospective tenants to stop the car and look at my rental property. If they don’t stop the car, they won’t rent your property.
In addition I want to ensure that I am providing the best quality home at any given price point. There are lots of landlords in my market and I want to make sure that when two or more similar rental properties are compared, mine look to be a step above the rest. The good news in my market, is that you do not need to spend a bunch to provide that noticeable difference. Simple clean up can be enough.
Establishing a Defined and Repeatable Process
The characteristic that has made us the most successful is our creation of a defined and repeatable process. When you have a defined and repeatable process you can look for opportunities to improve and tweak your model.
The process does not need to be complicated, and in fact it should be easy to understand. Our process starts with constantly staying in the market, talking with new agents all the way through closing on a deal, and properly repairing the property.
Every member on our team knows the process and they all actively participate to ensure we complete the process efficiently and effectively.
In summary a successful Buy and Hold Investor:
- Makes their Money when they Buy
- Ensures Fast Occupancy and Low Turnover
- Has a Defined and Repeatable Process