Top 10 Reasons to Buy and Hold Real Estate

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Many articles on BiggerPockets are geared towards the “business” of real estate investing (ie. flipping, wholesaling, etc.). But most people consider real estate investing the buying and long-term leasing of real estate. While this can be a daily business as well, most investors that buy real estate to hold, do so for the long term benefits and passive nature of the investment.

I personally believe buying and holding real estate for the long term is one of the most effective wealth building strategies available to the general population. Here are my top 10 reasons why I like this model:

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1.) Appreciation –

Despite the recent real estate crash, when you look at real estate over the long haul, it’s accurate to assume some level of appreciation in your real estate holdings. Yes, there are market cycles where values rise quickly or fall quickly, but by and large, real estate is an asset class that appreciates. In addition to this, investors have the ability to research market dynamics and make fairly knowledgeable decisions based on anticipated appreciation for a particular market.

2.) Passive Income –

Holding real estate can be a very passive investment that provides returns much higher than could be obtained through other passive investments (ie. stock, bonds, etc.). With the ability to outsource property management, accounting, etc., investors can  still make  good returns while playing a very hands-off roll in the investment.

3.) High Leverage –

Real estate investing is one of the few investment vehicles with the availability of high leverage (ie. financing). Try walking into your local bank and asking for a line of credit for $800,000 secured against only $200,000 of your cash for the purpose of investing in gold, stocks, mutual funds, commodities, etc. They would probably laugh at you. But, if you walked into that same bank and told them you wanted to buy 10 houses at $100,000 a piece …. they would usher you over into their mortgage division to begin working on your 10 loans.

4.) High ROI –

With the ability to acquire high leverage comes the ability to obtain a very high return on investment. Not only does your monthly cash on cash return go way up when you use leverage , any appreciation on the property amplifies your ROI as well. This is because the entire asset appreciates rather than just the amount of money you invested as a down payment.

5.) Principle Paydown –

A commonly overlooked benefit of investing in real estate is the fact that while your tenant may provide you with positive cash flow above and beyond your mortgage payment, they are also helping to pay down the mortgage as well. While the principle portion of the mortgage payment is minimal at first, every year that you own the property the amortization of the principle amount of your loan speeds up. Before long, you are shaving thousands of dollars off of your loan amount every year until ultimately you own the property outright.

6.) Tax Benefits –

As  taxpayers in a tightening tax system, any kind of deduction can be helpful. Owning real estate allows for the deduction of mortgage insurance as well as the depreciation of the property itself. In addition to this, real estate can also afford you the opportunity to defer tax liability by using 1031 exchanges to continue investing funds in new properties while deferring tax liability indefinitely.

7.) Hedge Against Inflation –

Many analysts believe inflation is coming (if not already here). Owning real estate and using leverage (especially at these low interest rates) is a great way to hedge against coming inflation. If prices rise, so will the cost of housing … owning an asset that rises with the tied is a great way to protect your wealth.

8.) Increasing Rents –

Very few would speculate that housing rents will decrease over time. Most analysts have already stated that rents are expected to increase over the coming years. Owning real estate not only allows you to lock in housing prices and interest rates that are at all-time lows, it also provides you with the an opportunity to increase future cash flows by increasing rents … thus increasing your ROI in future years.

9.) Retirement Income –

For those investors that look at real estate investing as a very long term proposition, the potential to retire on rental income is very real. I know many investors that have owned real estate for multiple decades as a retirement strategy and ended up very wealthy as a result. Over a 20-30 year period of time, investors can own numerous properties outright and create a net worth well into the millions. Additionally, the cash-flow that can be generated from properties that no longer have mortgages can be very nice supplements to pensions, 401Ks, social security, etc.

10.) Creative Exits –

One of the best characteristics of real estate investing is the plethora of strategies that can be employed when selling a property. Real estate is nice because it doesn’t have to be a permanent proposition. You can own a property for 1 month or 50 years … it’s completely up to you. When it comes time to sell a property, investors can use any number of different strategies to maximize profits.

Photo: dalylab

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

13 Comments

  1. Great points presented Ken. Simple yet powerful reminders of why buy and hold is where it is at. I have only flipped so far – but really need to start focusing in holding for retirement and beyond!

  2. Ken, great article! As auctions are drying up and most investors being top heavy on that side of the business we are seeing many move to MLS distressed deals as well as buy&holds. Perfect timing for this article

  3. Susan Gillespie on

    As a buy-and-hold investor myself, I fully agree with your points. I also see real estate as a good way to diversify an investment portfolio.

    On the flip side, there are top 10 reasons NOT to buy and hold real estate. (Depreciation, lack of liquidity, rental hassles, major repair expenses, etc.) People who benefit from real estate rewards also have to assume the risks.

    Either way, I like your article. A look at pros and cons provides an informed view.

  4. I lived my hole life following these rules and that what help me to retire at age 42. The only thing that’s different is #3, I try to keep my equity nowadays at 70% or better. When you have an income property that is cash flow positive, why on earth would one want to sell it?

    #10: As far as an exit strategy, can’t find anything close to my returns to invest in.

    • Price Peeler

      Jim,
      I would like to learn more about your strategy, thanks for the contribution to the comments. It has been a while since you made your comment, I would like to hear an update on the state of your portfolio and the strategy you are implementing. Anyone else care to comment on a similar strategy, feel free to send me an invite to connect.

      Thank you,

  5. Amy Davidson on

    Hi Ken,
    Your article was like preaching to the choir with me. I’m true buy and holder. That being said, I think that you left off an important detail in the appreciation and/or creative exits section. If you are well diversified, you can take advantage of appreciation by occasionally selling one property in a booming area of the country, or the world, and buying five or more with that same money in an area where property is experiencing a drop in prices. Generally the rents don’t fluctuate as wildly as property prices, so you’ve increased your rental income and increased your portfolio. Then wait 10 years, or less, and do it again in reverse.

  6. Robert Steele on

    “Try walking into your local bank and asking for a line of credit for $800,000 secured against only $200,000 of your cash for the purpose of investing in gold, stocks, mutual funds, commodities, etc. ”

    RE is not the only investment where you can use leverage. In fact most Foreign Exchange brokers will give you 100x leverage and some even 200x. Also some brokers, such as Interactive Brokers, will lend you $1MM to buy stocks if you put down $200K.

    In all cases remember that leverage is a double edged sword. Just ask all those people who bought RE with no money down or 5% down loans.

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