Why does buy-and-hold investing work?
Home-buying has remained an integral part of the American Dream partly because owning real estate is considering an investment. Appreciation and growing equity make for compelling incentives!
While a personal residence alone won’t build long-term wealth in the modern age, a buy-and-hold real estate investment strategy will.
8 Undeniable Benefits of Buy-and-Hold Real Estate Investment
#1 Passive Income
While earning passive income isn’t a hands-off experience, it demands far less time, attention, and expertise than other, more hands-on investment strategies. This is particularly true if you utilize the services of a turnkey provider or property management team. With help, you have room to infinitely expand your investments — and your streams of cash flow — regardless of personal limitations of time, experience, and ability.
#2 Tax Advantages
Uncle Sam likes long-term investors. As a buy-and-hold investor, you have access to numerous advantages and strategies that reduce your tax liability. Consider property depreciation and deductions for the management of your property (including mortgage interest payments, maintenance costs, and management fees, among others).
You also can utilize the 1031 Exchange, a proven strategy that allows investors to acquire like-kind properties without incurring capital gains taxes. In general, your capital gains tax rate will be lower when you hold the property for a long time.
#3 Hedge Against Inflation
Inflation steals your wealth. Because real estate grows in value with inflation, you won’t lose out when the value of the dollar goes down. You can constantly adjust for the inevitable with the knowledge that rent growth often outpaces inflation. Other investments demand the calculation of “real returns” by factoring in inflation. With real estate? Not so.
#4 Predictability
Although real estate can be a risky venture, buy-and-hold investors benefit from its predictability. By selecting stable, consistent markets with a history of growth, you can predict cash flow and appreciation year by year with astonishing accuracy. Long-term real estate growth transcends stock market fluctuations and the temporal ups and downs of the real estate market.
#5 Retirement Funding
Traditional retirement funds are finite. Buy-and-hold real estate has limitless wealth-building potential. It’s not all about passive income, either. As you utilize rent payments to pay down mortgage debt, your equity grows without compromising your finances. Then there’s long-term appreciation, which only increases your net worth. Once your buy-and-hold properties are paid for, more of your cash flow can go towards retirement. You might even get to retire early!
#6 Leverage
Real estate uniquely allows investors to access leverage. That is, using other people’s money to acquire investments. In most cases, these are mortgage loans from financial institutions. You have the downpayment, but the mortgage is paid off through rental income. In time, you can scale your portfolio while using a minimal amount of your own money — all while dramatically increasing your net worth.
#7 Scalability and Diversification
Buy-and-hold real estate is scalable. Utilizing leverage stretches your money further, allowing you to acquire more properties more quickly. You only have to have a fraction of the property’s worth to acquire it. Plus, there’s the opportunity for diversification. Buy-and-hold real estate is found in virtually every market, so options abound.
Diversification reduces overall portfolio risk. You can diversify not only in terms of individual properties, but in types of properties, strategies, and target real estate markets.
#8 Exit Strategy Options
Every investor needs an exit strategy. Buy-and-hold investors, particularly those who buy residential real estate, are at the greatest advantage. Other investment strategies demand a quick exit to avoid financial losses. Think timing the market to sell a flip to maximize your profits. If the market doesn’t perform as expected, your profit margins will be lacking.
Buy-and-hold real estate investors don’t rely on the real estate market cycle to benefit. They can afford to be patient, particularly if cash flow remains positive.
Not only can you sell — and profit — at virtually any time with a long-term investment, but SFR investors have more options for their exit strategies. You don’t have to exclusively target other investors or firms. Single-family properties are always in demand, whether you’re selling to another investor or the consistent, large pool of average homebuyers.
Buy-and-hold real estate investing is time-tested. Investors choose this strategy when they want to secure long-term wealth reliably. Utilize professional services to minimize your direct input — making it an accessible and lower-risk strategy regardless of your experience level.
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