Real Estate is an exciting business to become invested in, but that same excitement can be met with anxiety at such a large-scale investment. It is important to research your purchase before laying down any cash or commitment – doing so can help you feel more content in the decision to purchase a home or building space. When planning to purchase a “buy and hold” property, consider the growth factor for the location, population, and general area. If your research looks promising, you can look forward to a rewarding return on investment a few years down the road should you decide to sell.
How It Works
The term “buy and hold” in real estate describes the long-term process of strategically purchasing a home or homes as an investment based on marketable factors like location, infrastructure, schools, and local buying trends, and then using the property as a rental to supply a steady source of income while you wait for the value to increase. A “buy and hold” sale is essentially the purchase of a home or building where the owner becomes a landlord, thus holding and maintaining ownership of the property while it appreciates in value. While many people maintain ownership of their rental properties, using them as a steady influx of income, some “buy and hold” investors choose to re-sell the property once it has appreciated in value to an amount more than the total investment made. The owner will sell the property once they feel confident that the property has reached its peak market value or a value that yields a favorable return on investment.
Expect the Market to Rise and Fall
It is important to note here that market values often rise and fall. Like the stock market, if you watch the values of your properties too closely, it will stress you out unnecessarily. When you purchase a property intended as “buy and hold” real estate, you must proceed with the understanding that these types of real estate investments are usually long term and you likely will not see a significant profit margin overnight. After several years, sometimes many more, you may notice an increase on the value of the property – and it is then that you will decide whether you should sell and collect your return on investment, or continue to hold the property in hopes that it will continue to steadily increase in value, driving your profit potential onward.
How Do You Know That It’s a Good Time to Sell Your “Buy and Hold”?
While you should refrain from excessively stressing every time the market fluxes, it is wise to keep a general consensus of market trends. If a once bustling area begins to lose its luster and people stop moving to the area or its residents begin to move away, then it is feasible to infer that market value will begin to steadily drop – in this case you would have more to gain by selling your property. Otherwise, selling is an option when your property appreciates enough to yield substantial return on investment, or when you notice the market crest. Real estate can be tricky, but understanding trends and basic principles of return on investment will help you remain confident in your real estate endeavors.