Ok, for all of you who prefer a tried and true real estate strategy that can pretty much weather any storm Buy and Hold is it. The Buy and Hold real estate investment strategy has been around since the beginning of time. It is, in my opinion, the safest, most proven way to true wealth.
Let's take a look at all of the pieces of a Buy and Hold deal.
Key Players
The Landlord - This is you, if you use this strategy.
The Tenants � These are the strange people that will move into your property and hopefully pay you rent each month.
The Lenders � These folks will make it possible for you to make money, using their money. Pretty cool, right?
The Property Manager � These are the people who will help you keep your sanity over the years. After you have got your feet wet by managing a few properties yourself, I always recommend enlisting the help of a professional property manager.
Pro's
The potential of creating passive income through monthly positive cash flow.
If you have a loan, each month you will pay down the principal of your loan with your tenants money thereby creating equity.
Historically properties appreciate so there is a real chance that over your time your property will increase in value.
Owning buy and hold real estate entitles you to some pretty sweet tax benefits, not available to you with any other investments.
Owning real estate long term is a great way to diversify your investment capital.
Con's
Bad tenants who don't pay on time or pay at all.
Bad tenants who trash your house.
Poor property managers who do not manage your property as thoroughly as you would.
On going maintenance issues.
Buy and Hold Step by Step
Property selection � When you are selecting a property to hold as a long term rental you want to look a several key factors. Number one is location. You want a property that is located in a stable area that will attract a quality tenant. Quality tenants want to live in quality areas, it's that simple!
Next is the property itself. Do not buy a property that does not fit the neighborhood makeup. This means if all properties are 3 bed 2 bath homes, do not the only property that is a 1 bed 1 bath. It just doesn't make sense. Finally, only buy properties that are fundamentally designed to appeal to the masses. This means those homes where the only bathroom of a three story home is located on the first floor behind the kitchen are out! The homes where you have to walk through one bedroom to get to the next or walk through the bathroom to get to the other bedroom, there no good either. These types of homes are just not going to appeal to most people and you don't want to buy these homes for the long haul. Keep your purchases in good areas, acceptable for the neighborhood and mass appealing.
Financing � Financing is key to creating positive cash flow. Positive cash flow is very important because it equals passive income and the more passive income we have the sooner we can retire! When selecting financing I am going to suggest three things:
1] Fixed rates only. No adjustable rates when buying and holding.
2] Escrow taxes and insurance. It just makes it easier, trust me, do it.
3] Stretch payments out as long as you can. If they offer you a 30 year term TAKE IT. Why? Because you can always pay more but you can't pay less. So if you take out a 30 year loan but have the money and want to pay more to decrease that to 20 years, then by all means go right ahead. However if you took a 20 year and times get tough, now you are stuck at that higher payment. Get it? Good!
Tenant Selection � I could write for days on this topic and it still wouldn't help. The reason is because sometimes the people who look the worst on paper are the best and the people who look the best are the worst! Here are some general guidelines to follow but sometimes your intuition about someone will prevail.
Credit history � I'm ok with a few credit issues but not for things that affect housing such as judgments for evictions and utility collections. A medical bill here and there, late credit card, ahh, who cares. If they were perfect they wouldn't be renting.
Employment � First off they MUST work. Second is the length of their employment with their employer. I really like to see at least 2 years steady. This shows responsibility and goes a long way with me.
Current housing � Are they living in an area that is comparable to where your rental home is located. Why are the moving? What does their current landlord say about them? Note � Some landlords want tenants gone so bad that they will lie to you getting you to approve them so they will move out of their property. Use a little trick and say, "Is it true they pay $500 per month" [when you know it's $400] or "So they have lived here for 2 years" [when you know it was only a year]. If they agree with the wrong answer then you know you can trust this information and you must rely on the other research.
Your intuition � If someone comes in and you get bad energy from them, then so be it, don't rent to them. If you get great vibes then maybe they are just right for your property. Trust yourself to be a good judge of character and go with your gut but do not let it be your only deciding factor.
Management- You are not only managing your property but you're managing your tenant. In order to properly manage your buy and hold portfolio you need to lay down the ground rules from day one. All of your rules, regulations and terms should be clearly laid out on your detailed, easy to read and understand lease. From there you need to create detailed systems, procedures in which you will follow. You need to create procedures for:
Tenant Screening / Tenant Placement
Move In / Move Out
Maintenance Call / Emergency Situation
Late Rent / No Rent / Eviction
Record Keeping / Bookkeeping
I recommend QuickBooks for accounting and Rent Right www.rent-right.com for property management record keeping.
Well I hope this has helped you determine if Buy and Hold is right for you. Buy and Hold is a strategy that has worked for me. I currently hold over $2,000,000 in rental real estate and will continue to acquire properties for this purpose for many years to come. In our next lesson we will learn about Renting To Own.
If you would like to learn more about
Harrisburg real estate deals visit http://www.padeals.com.
