Buy & Hold
Buy & hold is the most common form of investing, the "buy and hold strategy” involves purchasing a property and renting it out for an extended period of time. It’s probably the most simple and purest form of real estate investing that there is. Essentially, a "buy and hold investor" seeks to create wealth by renting the property out and either collecting monthly cash flow or simply holding the property until it can be sold for a gain in the future. Among the advantages of this strategy is that during the time that you hold the property and rent it out, the mortgage is paid down each and every month, decreasing your principal balance and increasing your equity in the property One of the most important things for a new buy and hold investor to understand is how to evaluate deals and opportunities. By far the most common mistake that we see new investors make with this strategy is buying bad deals because they simply don't understand property evaluation. Other common problems include underestimating expenses, making bad decisions on tenant selection, and failing to manage properly. These mistakes can all be avoided, however, if you simply learn the business; jumping in without proper education can be extremely costly financially and sometimes, legally.
To properly carry out the buy and hold strategy, an investor should learn how to properly identify the ebbs
and flows of the market that a property is located in. Ultimately, when they perceive the market and the
properties they are interested in to be at a low point (prices low, inventory high), the buy and hold investor seeks to purchase properties When the market becomes over-heated, an experienced buy and hold investor will usually stop buying until they see things settle back down. During these slow periods, they may sell or simply continue to hold their properties. Some buy and hold investors never sell a property, choosing instead to pay the mortgage off and live on the cash flow or may ultimately sell using "Seller Financing"Ultimately, there is much more to buy and hold than meets the eye, but if you can learn how to evaluate and buy good deals, find quality tenants, and manage properly, you're going to be on your path to running a successful business.
Maintain close relations with contractors and handyman. That’s important. Investors need trusted contractors so repair costs don’t spiral out of control. They also need to have the work done quickly so the home can start generating rental income. It can’t sit idle for a few months while the contractor disappears. The taxes, utilities, insurance, and other monthly costs add up too quickly and you start with a loss.
3 Key Factors in Buy and Hold Real Estate Investment
- Makes Money when you Buy
- Ensure Fast Occupancy and Low Turnover
- Defined and Repeatable Process
Buy - Renovate - Sell
One of the most popular investment tactics for making money in real estate is flipping houses. House flipping is the practice of buying a piece of real estate at a discounted price, improving it in a way, and then selling it for a financial gain. The single family home is the most popular type of property to flip. A rule of thumb known as the 70% rule: an experienced house flipper will buy a home for 70% of its current value less any rehab costs. For example: Home A should be worth $100,000 if it were in good condition, but it needs $20,000 worth of work. A typical house flipper will purchase the home for $50,000 ($100,000 x 70% - $20,000) and seek to sell it for the full $100,000 when completed. This is simply a rule of thumb, and actual numbers must be verified and adjusted to ensure a successful and profitable flip. One of the key aspects in flipping a house is speed. A house flipper will attempt to buy, rehab and sell the property as quickly as possible to ensure maximum profitability and to avoid many months of expensive carrying costs. These carrying costs include monthly bills such as financing charges, property taxes, condo fees (if applicable), utilities and any other maintenance bills required to keep the house in good financial standing. Flipping is not a "passive" activity, but instead is just like an active day job. When an investor stops flipping, they stop making money until they begin flipping again. Many investors choose to use flipping to fund their day-to-day bills, as well as provide financial support for other, more passive investments.
According to the 2nd quarter 2016 U.S. Home Flipping Report, shows a total of 51,434 U.S. single family home and condo sales were completed flips in the second quarter of 2016, up 14 percent from the previous quarter and up 3 percent from a year ago to the highest number of home flips since Q2 2010 – a six-year high.
Homes flipped in Q2 2016 accounted for 5.5 percent of all single family and condo sales during the quarter, down from 6.7 percent of all sales in the first quarter but up from 5.4 percent of all sales in Q2 2015.
A total of 39,775 investors (including both individuals and institutions) completed at least one home flip in Q2 2016, the highest number of home flippers since Q2 2007 – a nine-year high.
"In today's single family real estate sector there is more institutional capital, which means that more financing is available and more attractive for real estate investors.
Gross flipping profit increases to new all-time high
Homes flipped in Q2 2016 sold on average for $189,000, $62,000 more than the average purchase price of $127,000, according to ATTOM data. That $62,000 average gross profit was up from an average $59,250 gross flipping profit in the previous quarter and up from an average $57,900 gross flipping profit in Q2 2015 to the highest average gross flipping profit since Q1 2000, the earliest quarter tracked in the report.
The $62,000 average gross flipping profit represented an average 48.8 percent return on the original purchase price, down from a 49.3 percent average gross flipping ROI in the previous quarter but up from a 47.5 percent average gross flipping ROI in Q2 2015.
Average days to flip at 10-year high
Homes flipped in Q2 2016 took an average of 185 days to flip, up from 180 days from the previous quarter and up from 182 days in Q2 2015 to the highest level since Q2 2006 – a 10-year high.