If you’re beginning in real estate investment, the number of potential investment options can be overwhelming, making it difficult to decide what to do first. Which option best fits your financial status? This two-part series introduces investment newcomers to three of the simplest and most common methods used by both new and veteran investors.
Buy and Hold
The buy and hold method is one of, if not the, most common method for real estate investing. It’s a long-term, passive investing strategy that is best used when the market is both improving and expected to continue improving in the years to come. Think up-and-coming neighborhoods, or areas that are seeing an explosion of development.
To buy and hold, you select a property that fits your plan and rent it out. Ideally, you’ll be making a nice profit off of the monthly rental income. However, that won’t always be the case.
The strength of this real estate investing strategy is that if you find yourself in a position where your monthly return isn’t quite what you were hoping for – just sit tight. As the market improves, the amount of money you’ll be able to collect in rent will grow, but your house payment will remain the same. Additionally, as the price of the home increases, you can sell it a few years down the road for more than you initially paid.
Sounds easy, right? Well, there are a few considerations.
The hardest part about the buy and hold strategy is purchasing the right home in the right area. Diligent market research is necessary to ascertain if the housing market in a given area is strengthening and for how long it’s expected to continue. It can be beneficial to find out the going rental rates in the area and compare them to the payments you’ll make after you buy the home. While the numbers will by no means be guaranteed, you’ll have a ballpark estimate on what you stand to make monthly.
Part Two of this two-part series will describe a similar strategy. Be sure to check back.