When you’re looking at investment properties, you’re definitely looking for those you want to hold onto. In short, you’re always exploring your options. And, boy, when it comes to looking at all the different properties that are available to you in the world there are a whole lot of options to consider!
Buy-and-hold is my favorite strategy for several reasons:
- It gives you greater stability. Every month I know the cashflow I’ll be earning per door. If that is a single-family residence that’s just one door. If it’s a multi-family property, I get to multiply that cashflow by the number of doors. As you move forward in your real estate investing business and build your skills you might see the major advantages of investing in multi-family properties. This is definitely a buy-and-hold strategy! (And it can be very lucrative.)
- You can push up the appreciation. If I have a property that I’ve taken for the long term, there are things I can do to bump up rents and bump up the value. It could be something very simple like giving the exterior of the property more curb appeal. You’ve heard the old adage of “slapping a little lipstick on the pig”? Well, it’s like that. Even a pig can look pretty with the right improvements and lipstick. In this case, it landscaping and painting, but you get the idea. It doesn’t have to cost a lot of money to make these improvements either, but it will likely cost you time… because there are lots of things you can do on your own. (You don’t have to hire the expensive landscaper to take out ugly shrubs and plant blooming flowers.)
- You get to depreciate the property over 27.5 years. This is a big benefit. If you hold onto a property long enough, you’ll be able to take the depreciation that occurs over time. That may not mean much to you now, but come tax time it certainly will. You can depreciate the property, plus depreciate line items. For example, if you put in nice, new appliances when you take the property over, those items have a depreciation schedule. Every year for a period of time their value goes down (it depreciates), which means you get to claim that depreciated value on your taxes. Rather your tax professional can… and I’m no tax professional, so please don’t take this as legal or tax advice!
- You can use the property in different ways even beyond your typical rental. For example, I can put a business inside the property… perhaps creating an assisted living for elders or sober living for those who really need it, or maybe I could turn it into an income-producing vacation rental or corporate rental. Those can earn you thousands of dollars a month. I know several people who are using that strategy right now. But you can’t use this strategy if you don’t intend to hold onto the property over the long haul.
- You’re not stuck buying properties in in own back yard. You can use the buy-and-hold strategy anywhere. In fact, I can’t think of a place where you can’t buy property and hold onto it for years to come. At least nowhere that I’d want to own properties here in the States. For me, it’s local properties I prefer over those in other states. I like to be able to drive by them and check on them whenever I feel the need. That’s not to say buying in other states is a mistake. You can do that with little issue, but you will need a dependable team that know how to handle problems that may arise. (Unless you can jet to that property at a moment’s notice.)
What If You’ve Fallen in Love with a Property?
First, that’s a big mistake. As a real estate investor and entrepreneur, your goal is not to fall in love with properties! This is a BUSINESS. You are in the business of real estate investing. You are participating in deals to earn an income or boost the income you are already earning. Buying and holding a property has nothing to do with loving it.
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Second, when you find a property that matches your criteria, you have to ask yourself certain questions:
- Will it appreciate?
- What is the depreciation rate?
- Will it create cashflow for you?
- Will it sell one day so you can move on to the next property and the next?
- In short, is it a good investment?
Then you apply the strategy that works for the particular property in question. If it matches, it’s time to get it under contract! Make it your own.
Ah, but what if you don’t have money or credit? Shouldn’t you wait to put the property under contract until you have the money for the down payment?
The very short answer is no.
There are ways to take over properties for the long term without using much if any of your own funding. (Have you ever read Rich Dad Poor Dad? If not, that’s where you’re introduced to the concept of OPM – Other People’s Money!)
And that’s just the start of the many creative strategies you can use to build your cashflowing property portfolio.
I’ll be writing articles about working with private investors who will be happy to participate in your deals soon. It’s all about relationships, dear readers… so get ready to bump up your relationship-building skills in a big way. Only this time you’ll be using them to get properties under contract.
For now, thank you for reading. If you like the content we’re building here on WREN, please share it. And leave your comments below.