Is “Buy and Hold” Real Estate Strategy Fail-safe?
What do you think the “buy and hold” real estate strategy could be? Well! To define, it is nothing but a method that asks you to ‘Buy’ a property below the fair market value and then ‘Hold’ it till the properties in the area appreciate- all this for making a decent profit on your investment.
This idea is the polar opposite of real estate flipping where we buy a property (even a leper property) and then renovate it in order to immediately sell it at a higher cost.
Where can we rate the “buy and hold” strategy?
So this leads to the question- is the “buy and hold” strategy failsafe? Truth be told, No. You can profit from it immensely only if you play your cards really right. However, if you do not err, you might make a windfall for sure. Let me take you through your part of must-dos when you decide to ‘hold’ a property.
Minimise holding costs
Properties cannot be managed effortlessly. There are always holding costs involved. The cost of repairs, renovations, adverse insurance claims by a third party, council approval costs, and so on, need being looked at carefully.
When you sell a property, remember not to subtract only the purchase price from the sales price to derive the profit.
Along with the purchase price, there are key aspects of transaction costs, negative cash flow and most importantly the time spent on buying and managing a property (Opportunity Cost) involved.
Buy at a feasible rate and in good locations
Buy properties at a price below the fair market price and select those locations which have historically catered to ‘fast-appreciating’ properties. It is always a bonus if you select locations that have multiple industries. Such areas do not suffer from recessive times even when one of the industries collapses.
Check the neighbourhood
If you want to hold properties for long, ensure that you are buying in smart neighbourhoods. As a first, mindset of people is changing. No more do we talk about McMansions near beaches. We are getting bent towards urban apartment living. This has a lot to do with our desire to avail key facilities and services (like hospitals, commercial hubs, cafes). Naturally, you must look to buy properties in kind of neighbourhoods we have discussed above.
Evaluate the rental market
Find where the rental market of the area is headed and which rental price range has most number of takers? To add, screen your tenants prudently or else they may increase your holding costs for a property on a later day.
To nail the point
Property investors with a handsome portfolio can always afford to latch onto a particular property for years. Those with a slim portfolio should be doubly diligent before taking the ‘Hold’ plunge.
Which do you personally prefer- “buy and hold” or upgrading/bargain purchases? I invite your opinions.
