Buy and Hold
A ‘buy and hold’ strategy is a strategy to acquire a turnkey property (one that doesn’t need any renovations or improvements) and hold on to it for the long term. Often your primary residence is part of your ‘buy and hold ‘strategy but in the context of investment properties, this strategy focuses on properties outside your primary residence.
Here is a brief overview of a buy and hold strategy:
Goals
- Purchase a property that will increase in value over a long period of time (typically > 5 years)
- Income from the property will cover all of the direct property expenses
Tactics
- The property should be located in a market that has good economic indicators that point to long-term growth: diversified economic, growing population, education institutions, progressive city council.
- Low vacancy rates and a tenant profile that suits the property location and type.
- Market rent rates should support funding this property and all its expenses including the mortgage, property taxes, maintenance, and possibly capital improvements
- Cash Flow: the property should pay for itself with some buffer to cater for fluctuations in rent rates, expenses and possibly rising interest rates.
Exit Strategy
- No Exit – hold the property and pass it along to the next generation.
- Sell only if:
- You need to liquidate or you no longer want the property
- Major changes in the property or market make it too costly to hold
Critical Success Factors
- Local market knowledge of property values, rental rates and tenant demographics.
- Having a plan for property management (self or contracted).
Suitable Properties
- All residential property types: preconstruction condos, condos, detached and semi-detached houses, duplexes, triplexes, multiplexes.
- Land (with consideration of holding costs)
- Commercial
Other Considerations
- Capital expenses: as this is a long-term investment, it would be wise to set aside (allocate) a portion of monthly funds to pay for major improvements such as a new roof, new appliances, HVAC, etc.
- Financing: impact to borrowing for additional investments
- Taxes: tax on rental income
- Understand your rights and responsibilities as a landlord. In Ontario this falls under the Residential Tenancy Act.
Recommended for:
- All Investors can buy and hold properties over the long term.
- Active investors who want to involve themselves in the maintenance and upkeep.
- Passive investors who only want to own the property and have no hands-on activities
Is a buy and hold strategy for you?
Contact me to have a conversation about how to get started in real estate investing.