Buy & Hold Real Estate is the Ideal Investment: Here Are the Numbers to Prove It


In my first article and our recent podcast, my brother and I made the claim that buy and hold real estate is the best investment around. As my father puts it, buy and hold is the best way for a person of modest means to become independently wealthy. Here I would like to defend that claim by addressing some of the thoughtful criticisms I received from the comments section of the first article.

A Reminder and Clarification

I am not saying that flipping or wholesaling are not good businesses. In fact, I think flipping and holding together is the best way to get into buy and hold for someone coming at real estate without a lot of money. Namely, flip one, use that money to live off of. Flip a second, and use that money for a downpayment on a property to hold. Then repeat.

Related: Top 10 Reasons to Buy and Hold Real Estate

There are also plenty of other great businesses and investments out there. At times, they make more sense to do than real estate. If you could have invested with Warren Buffet when he first started, then yes, you should have done that.

But pound for pound, buy and hold is superior. It is the I.D.E.A.L. investment:

I: Income (cash flow each month)

D: Depreciation (the tax advantages of being able to write off real estate as a depreciating item when it actually appreciates)

E: Equity Pay Down (the principal on the mortgage goes down each month)

A: Appreciation (national average is about 4.6 percent over the last 30 years)

L: Leverage (being able to use other people’s money to finance your acquisition)

I do not mean to say buy and hold is a perfect investment. It is not. If you had bought and held in Detroit, you would have taken a sizeable loss. But nothing is a perfect investment. Buy and hold is simply the best investment around in this author’s humble opinion. Especially when done right.

Now on to the criticisms.

“Stock Market Returns Are Better”

One commenter noted that “research that I see of the US residential prices seem to indicate the real estate prices keeping in line with inflation, and not making much real returns.” Most of what I’ve seen puts the return slightly above inflation, but it really doesn’t matter that much. For one, these returns don’t include cash flow (and I only recommend holding properties that cash flow) and principal paydown. Another commenter noted, “Very little equity accumulates in the early years of a 30 year amortization mortgage.” That’s true as well. In the first five years of a $100,000 loan at 5 percent interest, you’ll only pay off about $8,000. Of course, with a 15 year amortization mortgage, you’d pay off $25,500.

But to show why it’s not hugely important if appreciation doesn’t beat inflation by much, let’s use an example with the 30 year loan and say it doesn’t cash flow one cent and the market appreciates no faster than inflation. You still pay down $8,000 in five years on $100,000 loan, which averages out at about 1.6 percent return per year. Since appreciation and inflation cancel out, you’ve still beaten inflation by 1.6 percent.

But of course, you only put down $20,000. So you need to multiply 1.6 percent by five. Which makes it 8 percent. Now you are beating the market by 8 percent each year, and that’s without cash flow or appreciation. And that doesn’t even account for the benefit of depreciation.

With leverage, you don’t need to beat inflation. Let’s use the same example above and assume there’s three percent inflation. Here’s what you get:

Picture 1

Fifteen percent beats the stock market almost any day. And when you take principal paydown into account, over the long term, you have what amounts to an exponential increase in your equity. Let’s go with the 4.6 percent historical average for appreciation and a 5.5 percent loan amortized over 25 years. Here’s what happens to your equity:

Picture 2

After 15 years, you’ve added $131,000 of equity. Not too shabby.

“Leverage is a Two Edged Blade”

“Leverage is a two-edged blade. While yes, small *increases* in the value of a highly leveraged asset can produce extraordinary returns — small *decreases* in the value of that same highly leveraged asset will generate extraordinary losses and can wipe out the investor’s (borrower’s) equity and have the lender knocking on the door with foreclosure papers.”

Well said. I couldn’t agree more. Indeed, you can buy stocks on margin (with leverage), and it’s for this very reason that I would advise against it.

Leverage is powerful friend and a powerful enemy at the same time. If you have an 80 percent LTV mortgage, then if the market goes up 5 percent, you’ve actually made 25 percent on your money. But if it goes down 5 percent, you’ve lost 25 percent on your money.

But if you can buy a property for 70 percent of its ARV to flip, then you can buy a property for 70 percent of its ARV to hold. As I put it before,

“The real estate market makes no bones about it; it is undeniably an inefficient market. There are no motivated stock sellers out there. If someone wants to sell their stock, they just sell it. Not so with real estate. Selling a house is much more difficult.”

This is the reason that the stock market is efficient (more or less), and the real estate market is inefficient. This is why there are no smoking bargains to be found on the Dow Jones, but plenty down the street. Motivated sellers and value add propositions are all over the place.

By getting great deals (just like you have to if you want to flip or wholesale), you can take advantage of the benefits of leverage while insulating yourself from its risks. So let’s say you bought that property worth $100,000 for $80,000 and put $20,000 down. Now if it goes up five percent, you make an additional $5,000, or a 25 percent return. And if it goes down five percent… well, you can cry yourself to sleep knowing you’ve now only made $15,000 instead of $20,000.

Related: 3 Impressive Ways that Buy-and-Hold Investors Gain Equity

One commenter highlighted this very fact, stating,

 “…financial instruments also provided a MAJOR advantage over real estate – Liquidity … the ability to sell (or buy) (or sell then repurchase) the financial instrument with just a phone call or a few mouse clicks AND have the proceeds from that sale available in an instant.”

Liquidity is convenient, but it is real estate’s illiquidity that provides real estate investors the advantage. Illiquidity allows real estate investors to find great deals and thereby dull the other side of leverage’s blade.

“Property Management Sucks”

The final criticism is the only one I agree with. What if the you have to deal with “The Occupants from Hell?” Being a landlord is hard. Perhaps you can find a good property management company, but there are plenty of bad ones out there. Or perhaps you can do it yourself, but that’s a lot of work, and not all of it is pleasant. To quote my brother, “With the buy and hold strategy, you never realize your profits until you manage.”

There is plenty more to be said on property management that I don’t have space for here, but it is one of two major cautions I would give someone regarding buy and hold. The first, as implied above, is you need to make sure you buy and hold in a stable city, preferably the path of progress in a growing city, but at least a stable one. The second is you need to be prepared to either manage yourself or do the work to find a good manager and manage that manager.

If you are willing to do this, then there simply is no better investment around than buy and hold.

Do you think buy and hold real estate is the best investment around? Why or why not?

Let me know with a comment!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.


  1. Scott Trench

    I agree with this article and think that it’s a fantastic case study on why real estate is so powerful and where serious investors should focus their time and research. I want to throw in a few additional minor points:

    First, the appreciation rate you use may be challenged by other investors – the Case-Schiller Index might provide a more conservative estimate than the 4.6% rate that you use here. That may be an overestimate in terms of calculating real estate returns in aggregate.

    Second, I think that one area where you might be underestimating things is in rent:expense ratios. It’s my belief that rents have risen faster than maintenance costs on properties over the last 30 years. I’d be interested to see the numbers there on average. Even in the event that my assumption is far off, I think that’ where a lot of the true wealth comes for real estate investors is over time as they manage more and more efficient businesses, with higher gross rents. That leads to increasing margins and higher and higher ROI. Not possible with businesses you don’t control.

    Third, the most crucial factor, which you excellently point out in the article, that makes real estate the best investment for active investors is the market inefficiency. It’s almost impossible to guess which way stocks will go. It’s much more feasible to carefully select winning properties based on math, hard work, and due diligence.

    • Andrew Syrios

      Thanks Scott, I do see a variety of a different estimates on real estate appreciation, but I think people are missing the forest for the trees when they look at things this way. There is so much more to real estate investment than appreciation!

  2. Danny Duran

    Heck ya! Especially if you’re house hacking at the same time. I live in one of the units of my four unit buildings and self manage.

    In addition to all the IDEAL items you list above, I don’t have any mortgage or rent responsibility (building is cash flow positive with only 3 of 4 units rent). It’s like I gave myself a raise since the money I used to spend on rent stays in my bank account! Factor that into the return equation and its even better.

    Looking for the next buy and hold mf building in Chicago. Will start seriously shopping in August to increase the portfolio. Buy and hold all the way.

  3. Jesse T.

    Real Estate does have some nice features as an investment, but it isn’t always clearly the best investment.

    The transaction costs are a significant negative for real estate. In your example a stock portfolio returning 8% will be beat the return once you factor in just the agent commissions to sell take advantage of the increased equity. The leverage means in the reverse a 3% annual decline would wipe out the investor after 5 years, but the stock holder would only lose less than 3K.

    I think for most investors balance will be the key. There are a number of reasons that “investing” in stocks on margin is risky – one simple one is generally the company is leveraged already – so you essentially are adding leverage on top of leverage. Most of the companies that are not leveraged are relatively risky(but also potentially profitable) companies so there may not be much potentially of the company going to zero, but the possibility of a margin call is higher.

    • Andrew Syrios

      Transaction costs do hurt (although there are some, albeit much lower for stocks) but for a long term investor they don’t come into play too much. And with regards to leverage amplifying losses, a good investor can insulate themselves from that risk by getting deals with sizeable equity margins up front.

  4. Jay C.

    You are right. Buy and hold REI is fantastic but please. Will you folks stop with the long winded stock market comparisons. Sorry..the real data is out and the market flat blows REI away historically. You can play your scenarios all you like but we have so much historical data its not funny and honestly a waste of time.. Why on earth so many REI investors make this claim is beyond me…maybe to feel like they are great investors I just don’t know.

    • Andrew Syrios

      I conceded this point up front. Yes the stock market does have better returns than real estate by a good margin. But it doesn’t have the other advantages of real estate like depreciation, cash flow (unless they offer dividends) and principle paydown. But the big key is that there just aren’t bargains the stock market. Given that real estate is an inefficient market, it allows you to take advantage of all of leverage’s benefits without much risk by getting great deals that have enough equity in them up front to take a sizeable loss if the market turns south.

      • Adam Heim

        I would argue that there should be a rate of return premium on real estate vs. Stock markerw. In the atock market you just buy and wait. And as we’ve agreed. On over and over in forums…real estate is work. Even with a PM, its not on autopilot. Thus, you should be rewarded for tbe additional effort, otherwise everyone would flock to the set ot and forget it equity market.

        • I agree. Real Estate does require more work but that ties into more control over your investment.

  5. Travis Sperr

    Perfect – excellent article. I often ask people – “How much better would your parents or grandparents retirement have been with two or three paid for rental properties?”

    Love this:
    As my father puts it, buy and hold is the best way for a person of modest means to become independently wealthy.

    Thank you for sharing.

  6. Bill Syrios

    I guess, Travis, being the “father,” that I am the originator of that quote… and I appreciate your fondness for it, even though I’m sure I lifted it from someone else!

    The reason real estate investment can be such a powerful wealth creator is, of course, because of its I-D-E-A-L characteristics. That last characteristic, Leverage–getting in with a small amount of one’s own money while putting to work a much larger amount of other people’s money (OPM)–allows a multiplication benefit unlike any other investment.

    The only endeavor potentially eclipsing the benefits of real estate leverage is being a business owner who leverages his/her time by creating systems that produces wealth through the collective work of others. But, as we all know, the failure rate of new businesses makes this a difficult proposition at best. Real estate investment involves building a business as well, but it has the inherent built-in leverage of using OPM which makes it a surer bet to wealth building.

    Ultimately it’s not the person with the most toys that wins, it’s the person with the most debt that wins. I talk more about this in the 5th session of the series, DON’T MAKE A PROFIT, MAKE A FORTUNE, that Andrew, Phillip and I presented for an investment group. See:

    Of course there is “bad debt”: buying depreciating items and there is “good debt”: buying appreciating assets that have positive cash flow. The more UNcomfortable we get owing bad debt and the more active we get in pursuing good debt, the more wealthy we become. Many well-off buy and hold real estate investors I know don’t look at their assets for feedback as to how they’re doing, they look at their debt and enjoy seeing it steadily grow year after year. They know that flipping properties can be a very profitable enterprise but that holding them over time can make that enterprise a fortune!

  7. Jerry W.

    No bank in the world is going to loan you $80K on your $20K investment to go buy stocks. The dividends from the stock would not be likely to beat the income from a rental, and you do not get depreciation write off expense. At the end of 30 years not only did you get monthly income, you got a property paid off. The biggest drawback is that it takes work to make it happen. You probably should put a lot of work in choosing a stock and work into watching how it performs to sale if things go bad, not much physical work. For me the road to be financially independent has to come through real estate not stocks. The ability to leverage for large investments is not available in most other forms of wealth building. All investing has risks.

    • Zach Barnes

      This is patently untrue. Buying stocks on margin is easy and super cheap, the going rate for 4:1 leverage at Interactive Brokers for equities is 1%, and you can easily find dividend paying stocks that can easily provide 4% easily covering your margin costs. Outside of equities you can leverage bonds at 20:1 or more. Now, I am not advocating this strategy per se, but it is available and isnt necessarily expensive. The only hard work you’ll do is sleeping at night.

  8. Great post @Andrew. I just posted on another thread saying that even at today’s prices a long term holder who buys with moderate leverage and a margin of safety in cash flow will do fine. In 20 years the thing will be cash flowing like mad, you can pull a ton of equity out if you want and the guy who sold it to you will be hating himself for letting it go.

    Recently was trading war stories with a client and we each had stories from early mentors who told about ‘the one that got away’. I concluded that just about everyone who is successful over the long haul in this business would have Never Sell! carved on their tombstone.

  9. JT Spangler

    You also mention, and I talk about this all the time when discussing why I love real estate, how many value add plays there are. I buy in a hot market with older SFRs and basically 1% rule rents, but still am looking really good because I always buy places that need some to a lot of work, and then either do it myself or supervise subs.

    Obviously, I’m one big screwup away from bankruptcy, but so far it’s been an easy way to add instant equity to every purchase I’ve made. And then appreciation in my area has been in the double digits since ’12-’13, so that also helps.

  10. Honolulu Aunty

    Great article! One thing I have learned about the buy and hold strategy – it is boring compared to flips, so it is for those willing to be patient.
    I am a very impatient person, preferring craps instead of slot machines – but I did just hold on instead of rolling with flips. It does take time to see any positive results that are real, and then one day, it starts to happen.
    Almost every person I knew told me that it was too risky to invest in real estate in 2009. My reply to them was – 10 years from now, do you think I will be better off with cash flowing rental real estate in my pocket?
    Time is on the side of buy and hold.
    Mahalo again,

  11. I like buying and holding real estate for several reasons. I like being a landlord, generating a positive cash flow, and the most important is that I have a lot of control over this investment. My returns are dependent on how well I manage the property.

  12. Pat McGrath

    Actually doesnt your return go down each year based on the “trapped” equity? Your year 5 is around a 10% return on the 30k in equity. Yes its still a 15% return on your original, but you have to see that 30k as the money you have in TODAY. If you could get all that out what is its return? Your getting 10%. Thats why most investors watch that return on equity & leverage it back out & go get another property with in, thereby starting the high return & leverge cycle all over again.

  13. Pat McGrath

    Good article. But you dont cover cap ex. Eventually you’ll need new floors, paint, roof, water heater hvac, etc. But as you point out, you buy it cash flowing (now) to offset those future/current expenses.

    • Andrew Syrios

      On our analysis sheets, we have a line item for recurring CAPEX (we don’t put it below the line). If you look at it in that sense, CAPEX (after the initial rehab) is an operating expense and the deal only works if you have cash flow after all expenses including CAPEX.

  14. Angelo Behar

    Awesome analysis. I love both stocks and real estate, which is why I buy and hold stocks and real estate. If the stock market gets a little too hot, I pay down more towards equity on the houses. When the markets fall in price, I use the cash flow from the rentals to buy more stocks that are on “sale” increasing dividends and capital gains when the stocks go back up.

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