The Numbers Behind Long Term Buy & Holds

Most investors, and people for that matter, are conditioned to want everything as quickly as possible. If we have to wait in line for our morning coffee more than a few minutes we start to huff and puff and feel like the world is ending. This is particularly the case if you are a real estate investor. We want to see our returns as soon as possible. Looking six and even twelve months out is unheard of for some. That being said, there is a very large segment of investors who will look to grow their portfolios strictly with long term buy-and-holds, specifically rental properties. This strategy certainly makes sense but it all starts with finding and evaluating the right buy-and-hold investment properties.

The biggest factor in finding a desirable and profitable rental property is to listen to the numbers. It can be easy to make a property seem like a perfect fit by altering the numbers just a little bit, but all you are doing is hurting yourself. You may love the property, but if the numbers tell you to walk away, you had better run. Take a realistic look at the comparable rentals in the area and see how your subject property stacks up. If other properties have hardwood floors, stainless steel appliances and other amenities and your property does not, you cannot expect a comparable rent. This may seem obvious, but there are many investors who assume they can paint the living room and throw in a new dishwasher and name their rental price. The numbers will tell you if it is a good deal or not. You have to make sure you listen to them.

Aside from then numbers, it is also important that you buy in the right location. Overpaying for a rehab property in a good area may not make a ton of sense in the short term but if you plan to hold for ten or more years you want the security of a desirable location. A better location may take you years to breakeven but you have a much better chance at keeping your property rented year in and year out for top dollar. The spreads for a property in an undesirable neighborhood may be higher, but there are many other things you have to worry about namely keeping the property rented. A better property will produce better tenants and greatly increase your chances of avoiding vacancy.

The vacancy factor is everything when it comes to a rental property. You can have the best house in the best location, but if you don’t have any money coming in, it will quickly turn south. You need to take the time each lease and make sure you have the right tenants in place. This may mean taking a little less every month to keep a good tenant living there for another lease. The $100 less you receive will be nothing if you are looking at a vacancy in your $1500 unit. If you are sloppy or lazy screening tenants it will eventually come back to you.

Buy and hold investing is a great way to save for retirement and build a nest egg for the future. If you think towards the long term and let the numbers be your guide, you quickly build quite a portfolio.

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