By Dr. Teresa R. Martin, Esq., REIA NYC
If you want to build up a portfolio that generates real wealth and cash flow over the long term, then buy and hold real estate investing is one of the best investments around. Finding a good deal, holding on to it, and renting it out to others is a great opportunity to both generate residual income and build up your equity.
But, just because it's a great opportunity in theory doesn't mean that it is easy to do in practice. Here are three issues that many new real estate investors don't think about enough before buying a property they want to hold on to:
Poor investments will hurt you now and over the long run.
Even though you ultimately want to hold onto the property you purchase, you need to act like you are going to flip it. A poor purchasing decision can eat up your cash flow, limit your ability to refinance, and lead to other unwanted expenses. So, make sure you research the market for sales and valuation trends and have a sound exit strategy in place should the market start heading down. Finally, resist the urge to be lax in the negotiation process in the hope that you'll make your money back later, because there is no guarantee that you will.
How will you manage your property?
Many real estate investors purchase a property and assume that they will just be able to manage it themselves. After all, hiring a professional management company can get expensive and it may take some time till you settle on a competent and affordable provider of these services.
But, you have to be honest with yourself. Do you truly have the time and patience to be a landlord? If the answer is “no,” then hire some professionals to do it, and then make sure you factor in these costs when looking for a property to buy.
Create a maintenance plan.
Since you are depending on your rental income, reliable, efficient, and cost effective maintenance is not a luxury; it's a vital element in preserving your ROI. If you are managing the property yourself, then start building a list of plumbers, electricians, HVAC technicians, and general handymen who you can trust to do a good job and charge you a decent price for their parts and services. If you are using a management company instead, then pay close attention to the maintenance fees. If those fees seem too high then find out what's behind them. If you are being over-charged, then don't be afraid to take your business elsewhere.
In short, buy and hold investing is an excellent strategy for real estate investors, and the truth is that it's one of the best non-traditional investments currently out there. But, in order to capitalize on the potential returns, you need to think things through a bit before you make a purchase. Get it right, and you'll be on your way to building wealth and increasing your cash flow- both now and in the future.