As a commercial real estate investor, one of the options that you’ll be able to explore is buy and hold real estate. Buy and hold real estate comes with many different benefits, but there are also potential drawbacks that could minimize your investment or increase your stress levels. What should you know before you invest?
What Is Buy and Hold Real Estate?
Buy and hold real estate is an option for investors that are interested in long-term wealth building and receiving regular rental income. Unlike trying to flip a property for short-term profit, buy and hold real estate often involves holding a property for at least five years before deciding to refinance, sell, or simply continue renting the property. Depending on your motives for getting into this sector of the real estate market, you might never sell your properties at all and just enjoy regular income from your renters.
What Are the Advantages of Buy and Hold Real Estate?
There are many different benefits of investing through buy and hold real estate, including:
- Monthly income from your rental properties that you can budget around and rely on (providing that your properties are occupied)
- The appreciation of your properties over the years, as the longer that you hold, the more that your property will increase in value
- Compared with other types of investing, buy and hold real estate has a high return on investment
- Numerous tax benefits when working with an accountant to take advantage of them, including taking advantage of mortgage interest deductions, operating expense deductibles, and more
What Are the Risks of Buy and Hold Real Estate?
While there are numerous advantages of buy and hold real estate, you should never enter any investment without understanding the risks as well. Some of the potential drawbacks of this strategy include:
- Real estate is not as liquid as other types of investments, like stocks or treasury bills
- If you own a property, you are responsible for its management and providing your tenants with several legally-required things. If you don’t want to manage the property on your own, you can hire a property management company (but that also costs money)
- Real estate markets can inflate and deflate over time, so the time you are ready to sell might not align with the time you would get the highest return
Make Finances Easy at Your Real Estate Business with MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry, including construction and commercial real estate. We can work with you to improve your company and make sure that it is financially secure now and in the future. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.