5 Tips for Winning at Buy and Hold Real Estate Investing (and 3 Pitfalls to Avoid)

aerial view of homes in a neighborhood

“Don’t wait to buy real estate; buy real estate and wait,” says best-selling author and businessman T. Harv Eker. In a nutshell, this is the essence of strategically buying and holding real estate.

Purchasing real estate and holding onto it while it appreciates in value has proven to be one of the most successful and reliable ways to invest. As a result, books and resources on this topic abound and the information can feel overwhelming — but it doesn’t have to.

If you’re new to investing, or even just in need of a refresher, these top tips can help you get started with the buy and hold real estate strategy.

Let’s begin with a brief explanation of what buying and holding real estate really means.

What is a buy and hold investment strategy?

Most people know what it’s like to be a renter. Nearly all of us have had the experience of searching for the right rental within our budget, filling out an application, signing a lease, and paying rent to a landlord every month.

Quite simply, that landlord collecting our checks each month was using the buy and hold real estate strategy. With this approach, investors purchase a property, rent it out, and accrue both cash flow (via rent) and appreciation value (over time).

Buying and holding is a long-term strategy. As years go by, even with typical market fluctuations, property values increase — sometimes by a little, and sometimes by a lot. In the last five years alone, from February 2018 to February 2023, the median home price in the U.S. has risen by over $118k.

Owners can hold on to properties for years or even decades, refinancing or selling it if and when the time is right. This method can also be combined with other strategies, like fixing and flipping or the BRRRR (buy, rehab, rent, refinance, repeat) method.

Tips to succeed at buy and hold real estate investing

Being successful with this buy and hold playbook doesn’t require experience, but it does require planning, patience, and purpose. By attaining a deep understanding of the bigger picture and what your goals are for your financial future, you’ll have all the pieces in place that you need to succeed.

Even when you start small, you can win big by keeping these five pro tips front-of-mind:

1. Do your research.

The best cities to invest in have three things in common: affordability, job growth, and population growth. The relative cost of living in the area where you buy plays a major role in how long it will take you to recoup your initial investment.

A good measurement to use to assess an area is the price-to-rent ratio, or a specific area’s median home price divided by its median annual rent. This ratio can be as high as 51 in a city like San Francisco, or as low as 13 in a city like San Antonio.

As an investor looking to rent out a property, the most favorable areas will have a lower number. Job growth, which correlates with population growth, is another consideration to keep at the top of your research list.

Savvy investors monitor top corporations in an area, incoming job sources, median salary for workers, and the number of available jobs. In your analysis, be vigilant for signs of increasing population and a strong economy in a specific area. High demand for housing is an indication that you’re in the right place.

2. Consider getting your real estate license.

Real estate transactions can be complicated. Even if you do enlist the services of an agent local to where you’re buying, knowing the ins and outs of the transaction process from start to finish can give you the competitive edge you need to win the properties you want most.

Additionally, having the ability to sell your own properties when that time comes can save you thousands in fees.

3. Buy at the right time.

Keeping a pulse point on the state of the housing market is essential to getting in at the right time. Mortgage rates and market trends can directly impact your profits, so keep an ear to the ground for where the market currently is in the 18-year cycle of recovery, expansion, hypersupply, and recession.

But don’t stop looking for deals even when the market is less favorable. Auctions can be a great source for a great deal on properties outside of what you see listed on the MLS.

4. Be hands-on (or be willing to hire a property management company who is).

Managing tenants and the week-to-week maintenance of a rental property can be stressful. What will you do if a tenant is late on rent and needs to be contacted? How will you respond if a pipe bursts in the middle of the night and needs emergency repair?

For some investors, a good property management company with an established network of cost-effective contractors and vendors is the path to peace. But for investors just starting out, this additional expense could diminish returns. Being willing to roll up your sleeves can pay dividends.

5. Hire a tax expert.

There are myriad tax advantages to investing in real estate, especially when compared to other assets you could put your money in. Buying and holding real estate gives you the ability to deduct mortgage interest and operating expenses such as repairs, property taxes, and insurance.

You may also be able to take advantage of potential exemptions from FICA taxes for rental property income, the capacity to defer capital gains via a Section 1031 exchange, and more. Having a trusted tax expert to help you navigate and leverage all of the tax benefits available to you will keep you on track and make tax season less stressful.

3 pitfalls to avoid in buy and hold real estate

There are also a few things you should keep in mind as you start up your portfolio. Not every real estate investor’s strategy must be alike, but there are some key pitfalls to avoid that will help you gain the most success out of whatever approach you take to your real estate investments:

1. Failing to accurately estimate all of the costs can lead to loss.

Most homeowners learn rather quickly that the true cost of owning property amounts to much more than just mortgage payments. Be sure to account for homeowner’s association fees, local tax bills, homeowner’s insurance, projected maintenance and renovation costs, and any other spending that a property might require.

2. Going it alone can lead to burnout.

You can achieve a lot on your own as a smart investor. But building a team of experts that you can count on can help you avoid becoming overwhelmed. A team of trustworthy locals — like a real estate agent, lender, contractor, handyperson, attorney, insurance representative, inspector, and more — can help you navigate the local community and set you up for success no matter what challenges you face along the way.

3. Leasing to unqualified tenants can send your profits into a downward spiral.

Finding good tenants takes time and patience, and removing a bad tenant can be difficult and costly. Establish a reliable vetting process that gives you confidence that you’re putting your investment in good hands. Additionally, building and maintaining an amicable connection and line of communication with your tenants can decrease turnovers and vacancies — ultimately protecting you from loss.

Putting your money to work for you via a buy and hold strategy can be an exciting and fun way to grow your real estate investment portfolio. And by keeping these tips in mind, you’ll be primed to come out on top in the long run.

Remember: you’re never confined to only one real estate investment strategy. We can also help you get started with fixing and flipping, the BRRRR method, and wholesaling.

Browse Xome’s auction inventory and homes for sale now and find your perfect property.

The above content is for informational purposes only.  You should not construe any such content or other material as legal, tax, investment, financial or other advice.

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