For many real estate investors, especially those who are new to the industry, the sole point of the business is immediate profitability. However, as some of the industry’s top veterans have discovered, establishing a passive income might actually be more beneficial to your bottom line.
In many cases, that passive income is best realized by leasing your rehab projects instead of selling them outright. Not only will this generate greater income over the course of time as opposed to a sale, but it’s also a great way to build your reputation within a community before taking on additional projects in the neighborhood.
Appreciation vs. Depreciation
While there have been some trying times for the real estate industry, recent statistics actually reveal an upward trend within the real estate market over the course of the past 40 years. If these trends continue, as some predict they will, the profitability of long-term rental property can far outweigh and profits gained from a quick property flip.
There is also the issue of depreciation which, in this case, provides even more support for the strategy of buying and holding real estate. Since the IRS currently lets active real estate investors write off any property value that is over 27.5 years old, some astute investors have been able to maintain their rentals through the monthly rental fees of the property itself. This effectively results in a “tax-free” property, which adds yet another advantage to the buy and hold method.
Leasing or renting your rehab properties is also a great way to build up additional equity. While many investors rely on mortgages to sustain their business, this money ultimately has to be repaid at some point. By utilizing rental properties, however, a proactive real estate investor can use the monthly income from their tenants to pay off any mortgages in a timely manner.
Maintaining Your Presence and Reputation
As talked about earlier, buying and holding real estate is a great way to maintain your presence within a specific community or neighborhood. This tactic can be used to penetrate a new region or even to preserve your reputation in an existing one, depending on your exact plans and goals.
Little to No Obligation
Finally, buy and hold real estate is great for investors who would prefer to operate with little to no obligation on their behalf. Because you can essentially hold a property for as long as you want, there’s plenty of options when moving forward. While some use their property as a means of long-term passive income, others only hold onto their properties for a short amount of time. The choice is always yours when using the buy and hold method.
Turning Your Dreams Into Reality Through Buy and Hold Real Estate
The benefits of buy and hold real estate cannot be denied. With recurring income, increased equity and the ability to make your presence known, the opportunity to strengthen and bolster your business is very real. However, despite the potential for success in the industry, it takes a business-savvy, bright-minded and dedicated entrepreneur to make it a reality.