Another popular real estate investing strategy is the buy-and-hold, or long-term investment. A more robust methodology for growing your portfolio has become known as the BRRRR Method – Buy, Rehab, Rent Refinance, Repeat. For some investors this is their bread and butter. Other investors prefer quick turnarounds on their properties and not dealing with it in the long-term.
The strategy or strategies you employ all depends on your risk tolerance, capital, time, energy, knowledge, resources, etc..
Not sure if a long-term strategy is for you? Below we walk you through the biggest Pros and Cons.
Pros
Steady Rental Income
Some may call this passive income, but it is anything but passive. Ask anyone who has had to deal with tenants.
The closest you can get to a rental property producing passive income is hiring a management company to handle everything and just send you an owner’s check once a month.
Nevertheless, rental properties can be pretty reliable on generating consistent income, as long as you screen thoroughly and don’t cut corners. The income also needs to cover any mortgage payments, capital expenses, repairs, maintenance, etc. in order to be cash flow positive, which is the goal.
Long-Term Appreciation
Historically, real estate appreciates over time, meaning the longer a property is held, the more equity is built. This can lead to substantial capital gains when/if the property is sold.
Because of this appreciation and the increase in rental incomes, real estate is considered a hedge against inflation rates over the long term.
Tax Benefits
Tax deductions – such as mortgage interest, property taxes, depreciation, expense related to maintenance, etc. – can be a big benefit as well for investors.
Cons
Illiquidity
Compared to other asset classes, real estate is relatively illiquid. This makes is harder to quickly convert your asset into cash if needed.
Property Management Responsibilities
Managing a property requires time and effort, and it can sometimes come in waves making it overwhelming. It also requires some level of expertise – for example, screening tenants, addressing maintenance issues, knowing and staying up to date on laws and regulations, handling security deposits, etc.
Some investors are able to justify self-managing; however, there are times and situations that call for professional help.
Tenant Risks
One of the biggest impacts on cash flow can be problematic tenants, vacancies, and rental delinquencies. This requires landlords to have contingency plans in place, know local laws and what actions can be taken, and knowing how to screen property to avoid these issues in the first place. If you are not well versed in these areas, the best thing you can do is educate yourself or get professional help (property managers, real estate attorneys, real estate agents, etc.)
Regulatory and Legal Risks
Being a landlord and owning a rental property is subject to various regulatory requirements and legal risks. It is important to understand thoroughly landlord-tenant laws, zoning regulations, potential liability issues, etc. Again, if you are not well versed in this area, educate yourself or get help!
Need help assessing a real estate investment or getting started in general?
Then please reach out! We are always eager to help like-minded individuals who want to make money in real estate!
