This is the Wisdom Behind Holding Real Estate Long-Term

Morgan Stanley recently called homeowners “strong hands” in the real estate market. Strong hands refer to those with the financial means and capacity to hold onto their assets long-term. They withstand market volatility and downturns.

The reason behind this statement is three-fold: the number of fixed-rate mortgages in the U.S. (95%), the number of homeowners with mortgage interest rates below 5% (76%), and the number of mortgage-free homeowners (39%).

These “strong hands” reduce instances of distressed properties on the market, which keep home values up through economic hardship. In most cases, real estate is worth holding – and not just for the strong hands among us. For real estate investors, holding is critical if you want to reap the biggest benefits from your investment properties.

Here’s why.

4 Reasons Holding Properties Makes Sense

The Market Cycle

Short-sighted people worry when they see the market moving in directions they don’t like. They fail to realize that real estate – and the economy as a whole – moves in a cycle. Investors can uniquely take advantage of each stage: Recovery, Expansion, Hyper Supply, and Recession.

Short-term investors, such as flippers, must time their acquisitions and renovation timelines to sell in the right stage of the cycle. Failing to time it properly shrinks their profit margins and squeezes further investments. Buy-and-hold investors really don’t have to worry about the market cycle unless they’re making moves. They can afford to plan and bide their time.

And it’s not just about waiting for the “right” moment. It’s about capitalizing on the housing market at every stage!

Further Reading: Find Investment Success in Every Stage of the Real Estate Cycle

Capital Gains Taxes

When you sell an asset, you’re subject to capital gains taxes. The rate at which these profits are taxed depends on how long you hold the asset. Short-term capital gains are charged when holding an asset for less than a year. This is a higher rate than long-term capital gains. As a real estate investor, you make more money when you hold a property for longer. That’s not to mention the gains from appreciation, too!

Additionally, you can further protect your properties from taxation by employing the 1031 Exchange (deferring capital gains) and self-directed IRAs (investing in real estate tax-deferred).

Financial Stability

Most real estate investors have one overarching goal for their housing market ventures: to achieve financial stability and independence. While what this means manifests differently for every investor, buy-and-hold investing accomplishes it from several different angles.

Building Equity – Holding properties allows for continued mortgage paydown. With SFRs, this is accomplished through rental income. Later, this equity can be accessed through refinancing or selling in an opportune market. This equity increases exponentially as properties appreciate.

Utilizing Fixed-Rate Mortgages – For those with fixed-rate mortgages, holding properties means benefiting from stable, predictable mortgage payments, even if market interest rates rise. The U.S. predominantly operates with these types of mortgages. The more investors can predict and anticipate their costs and income, the better!

Refinancing Options – In a lower interest rate environment, investors can refinance for better terms or as part of a cash-out refinance to tap into built-up equity. Though real estate isn’t particularly liquid, there are ways to access cash as needed.

Hedging Against Inflation – Over time, inflation eats away at the value of the dollar. Your savings won’t go as far in thirty years as they do today! That’s just the nature of the beast. The great thing about real estate is that its value often grows with – and outpaces – inflation rates. With few exceptions, your investments today will be worth more in the future.

Peace of Mind

Finally, we never want to underestimate the value of peace of mind. The real estate market can be volatile in the short term. We can’t always predict what will happen. For those banking on quick returns, that can be scary – and risky. Holding properties can provide peace of mind by avoiding the stress and uncertainty of trying to time the market.

It goes further than that, though. It’s the difference between someone who tries to win big at day trading versus an investor with a stable, consistent portfolio. Short-term investors must move quickly, and they face a constant emotional rollercoaster. Easy come, easy go!

Buy-and-hold investors are looking at the forest, not the trees. They have the patience and confidence to wait. And waiting pays off.

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