R. E. Investment: Buy and Hold

Hey guys! We are back for our next installment in the investment series "Buy and Hold" so lets get right into it. The buy and hold strategy is probably the most well known and most common real estate investment strategy. Although it is the most commonly used in my opinion it is still a very misunderstood strategy. Often times a novice investor chooses this strategy when they want to get into investing in Real Estate, but there are lot of things to consider when looking to buy and hold real estate.

#1 Are you looking to buy and hold a property to have monthly cash flow or are you looking to hold the property until it appreciates in value to a certain price and then sell(delayed flip). Although they seem similar they can be two different approaches. I know investors that only invest in new home subdivisions, meaning they will buy a home in a new home subdivision in the early phase or 1st phase of construction and hold that home until later phases of the construction is complete then sell the home. This is an example of buying and holding the property to receive the appreciation value down the road. They buy in the 1st phase because typically the 1st phase is the lowest price and as each phase in completed the prices increase and in some cases can increase dramatically especially if there is high demand in that area or particular subdivision.

I have had clients buy a new home in the 1st phase and never move into the home and sell it 10 months later $100k above what they paid for it because the builder was in the 3rd phase and had no more of that particular floor plan. So if you are paying in an area where there is a high level of sales activity and prices are appreciating at a good rate it may be a good option to buy and hold that home for a while then sell it once the value has appreciated high enough. As with any investment there are inherent risk associated with this approach as well, so you it is important to be very clear and educated about the area that you are buying to know if this is a viable strategy and for how long.

#2 Buy and hold for monthly cash flow. The buy and hold for monthly cash flow is where most long term wealth in Real Estate is gained because if executed correctly you could capitalize on both approaches on the same property. There are a couple of different ways to look at a cash flow property, if you buy a property cash and then rent it out you a very likely to receive monthly cash flow because you don't have a mortgage to pay. Not everyone buys a property All Cash so they finance it and have a monthly mortgage so to determine if you are making a monthly profit on the property you subtract the monthly expenses from the monthly income and you have your net profit. I will talk more about how to analyze a property to determine if its a good buy and hold investment. 

The buy and hold strategy is used for many different types of properties in many different locations. You really have to analyze each investment individually based on the numbers because I have seen properties in great locations be bad investments and I have seen properties in some of the worst areas be great investments. As a novice investor it is wise to work with a Broker that understands investment real estate and that can help guide you in the right direction based on your goals and risk tolerance etc.

Next Week: How to analyze a "Buy and Hold" property

James Johnson
The Broker
CalBRE#01368706

Comments

Post a Comment

Popular posts from this blog

Why don't we?

Today's post is a bit of a rant, but I have to get this off my chest. People spend money on some of the dumbest things to me. Rather than spend money on investments, they spend money on cars, clothes and a bunch of other things that has no real value. People have become so materialistic and so focused on looking like they have money rather than doing the things to actually have money. I have a term that I use to describe people like that "Hood Rich". Now I am not saying that people are hood or anything like that. It actually doesn't pertain to were you live, it pertains to your mentality. It's like someone driving a $80k car and living in an apartment. Why? I would rather drive a Toyota Corolla and live in a Mansion than drive a Mercedes and live in a 1 bedroom apartment.  I said all of that to say that people need to spend their money on things that will appreciate (increase in value) not things that are worth less money the moment you buy them. Now I am sure t...
Read more

To buy or not that is the question

There has been a movement of late where today's young people have decided against buying and have decided to rent. There are some compelling reasons that support this thought process however buying a home is still a better option then renting. There is one truth that there is no way around and that is the fact that you are literally throwing money away by renting. If you are paying $2000 per month to rent and the house you are renting appreciates 10% over the time that you are renting you get absolutely nothing other than the bundle of rights you are entitled to as a tenant. If you are purchasing that same house and paying $2000 per month you are entitled to the 10% appreciation. Now keep in mind that if you are renting you don't have to worry about taking care of the maintenance and home care that you do when you are the homeowner. So although homeownership is great you do have to be careful, buying any home is not the answer. That being said in my opinion you won't fi...
Read more