Summary: Buying a rental property and holding onto it long-term is one of the best ways to build wealth. This article explains how this strategy compares to other common real estate investing strategies, and why we believe the buy and hold strategy is ideally suited for doctors and other high-income professionals.
[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
If you are thinking about buying a rental property as an investment, you should understand the different strategies used by investors to make money and build wealth.
While there are many variations of what you can do with a rental property once you own it, the methods essentially boil down to one of the following investment strategies: buy and hold, appreciation play (buy and sell), flipping (buy, fix and sell) and buying a personal residence as an investment (buy, live, fix, rent and repeat).
This article will discuss these strategies in detail and explain why the buy and hold strategy is ideally suited for doctors and other high-income professionals.
What Is Buy and Hold Real Estate Investing?
You’ve probably heard the phrase “buy and hold” in relation to the stock market Well, the same concept applies to real estate investing. Buy and hold real estate investing is a strategy where you purchase property with the intention of owning it for several years or even decades, rather than quickly flipping it for a profit.
This long-term approach allows investors to benefit from two key financial advantages steady rental income and property appreciation over time It’s one of the most popular methods for gradually building wealth through real estate because it offers stability while still delivering impressive returns
As a real estate investor myself, I’ve found buy and hold to be the cornerstone of my portfolio building strategy. Unlike more active investment approaches, buy and hold allows you to weather market fluctuations while collecting consistent rental income from your tenants.
Buy and Hold vs. Other Real Estate Strategies
To truly understand the value of buy and hold investing, let’s compare it with other common real estate investment strategies:
Buy and Hold vs. Fix and Flip
Fix and flip involves purchasing a property renovating it, and selling it as quickly as possible for a profit. Here’s how they differ
| Buy and Hold | Fix and Flip |
|---|---|
| Long-term ownership (5-30 years) | Short-term ownership (months) |
| Generates ongoing rental income | One-time profit upon sale |
| Benefits from property appreciation | Relies on forced appreciation through renovations |
| Lower risk, steady returns | Higher risk, potential for larger immediate returns |
| Less intensive day-to-day management | Requires significant hands-on work during renovation |
Buy and Hold vs. BRRRR Method
The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) is actually a slightly fancier version of buy and hold. The main difference lies in the refinancing portion, which allows investors to pull equity out of their properties to purchase additional investments. With traditional buy and hold, you might not leverage refinancing as aggressively.
Buy and Hold vs. REITs
Real estate investment trusts (REITs) are companies that own, operate, or finance income-producing real estate. Investing in REITs is simpler than direct property ownership, but typically generates less return on investment. Also, the dividends you earn through a REIT will usually be smaller than the rental income from a buy and hold property.
The Benefits of Buy and Hold Real Estate
There’s a reason why so many investors swear by buy and hold real estate. Let’s explore the major advantages:
1. Property Appreciation
Real estate generally increases in value over time. According to historical data, housing prices have consistently risen over long periods, outpacing inflation. The longer you hold onto a property, the more its value typically grows.
2. Consistent Cash Flow
One of the best things about buy and hold investing is the monthly rental income it generates. This provides a steady stream of cash that can cover your mortgage payments and other expenses while potentially leaving you with extra profit each month.
Most buy and hold properties produce between 4% to 10% return on investment from rental income alone, depending on the location.
3. Mortgage Pay-Down
Your tenants essentially pay down your mortgage for you! As they pay rent each month, a portion goes toward reducing your loan principal, increasing your equity in the property without additional investment from you.
4. Tax Advantages
Buy and hold real estate comes with significant tax benefits that can substantially improve your bottom line:
- Mortgage Interest Deduction: You can deduct the interest portion of your mortgage payments.
- Depreciation: The IRS allows you to deduct the cost of the building (not the land) over 27.5 years.
- Property Tax Deduction: Annual property taxes are deductible expenses.
- Maintenance and Repair Costs: These are fully deductible in the year they occur.
- Insurance Premiums: Another fully deductible expense.
5. Hedge Against Inflation
As inflation increases, so do property values and rental rates, while your fixed-rate mortgage payment remains the same. This makes real estate an excellent inflation hedge.
6. Increasing Profits Over Time
While rent increases alongside the cost of living, your mortgage payment typically stays the same (assuming a fixed-rate loan). This means your profit margin widens over time as rental income grows but your biggest expense remains constant.
7. Flexible Exit Strategies
With buy and hold investing, you have multiple exit options:
- Sell when market conditions are favorable
- Refinance to access equity
- Hold indefinitely for ongoing income
- Pass the property to heirs
The Drawbacks of Buy and Hold Real Estate
Despite its many advantages, buy and hold isn’t without challenges:
1. Upfront Costs and Ongoing Expenses
Purchasing property requires significant capital for down payments, closing costs, and possible renovations. Once you own it, you’ll face ongoing expenses like:
- Mortgage payments
- Property taxes
- Insurance
- Maintenance and repairs
- Property management fees (if you don’t self-manage)
- Vacancy periods
A best practice is keeping 1-3 months of expenses in reserve for emergencies.
2. Market Risk
While real estate generally appreciates over time, it’s not guaranteed. Some locations may experience stagnation or even depreciation. If you need to sell during a market downturn, you could lose money.
3. Property Management Challenges
Managing rental properties can be time-consuming and stressful, involving:
- Finding and screening tenants
- Collecting rent
- Addressing maintenance issues
- Handling tenant complaints
- Dealing with potential evictions
While you can hire a property management company, this will reduce your profit margins.
How to Start With Buy and Hold Investing
Ready to jump into buy and hold real estate? Here’s a step-by-step approach:
1. Choose the Right Location
Location is crucial for a successful buy and hold strategy. Look for areas with:
- Population growth
- Strong job market with diverse employers
- Good schools and amenities
- Low crime rates
- Positive appreciation trends
- Favorable rent-to-price ratios
2. Set Your Budget and Secure Financing
Determine how much you can afford to invest and explore financing options:
- Traditional mortgages: Typically require 20-25% down for investment properties
- Hard money loans: Higher interest rates but easier qualification
- Partnerships: Pooling resources with other investors
- Equity from existing properties: Using refinancing or home equity lines
- Seller financing: When the property seller acts as the lender
3. Analyze Potential Deals
When evaluating properties, use these key metrics:
- Cash flow: Rental income minus all expenses
- Cap rate: Annual net operating income divided by purchase price
- Cash-on-cash return: Annual pre-tax cash flow divided by total cash invested
- Potential appreciation: Based on historical trends and future growth predictions
The BiggerPockets rental property calculator can be super helpful for running these numbers!
4. Purchase and Rehab (If Necessary)
Once you’ve found a suitable property:
- Make an offer and negotiate terms
- Conduct thorough inspections
- Complete the purchase
- Address any needed repairs or updates before renting
Remember, when rehabbing a rental property, focus on durability and functionality rather than luxury finishes. You’re getting it ready to rent, not to sell.
5. Find Quality Tenants and Manage the Property
Good tenant screening is crucial for buy and hold success:
- Verify income (should be 3x monthly rent)
- Check credit history
- Contact previous landlords
- Conduct background checks
- Ensure proper lease agreements
For property management, decide whether to self-manage or hire a company. Self-management saves money but requires time and knowledge of landlord-tenant laws.
Real-Life Example: My First Buy and Hold Property
When I purchased my first buy and hold property, it was a small 2-bedroom house in a growing suburb. I put 20% down on a $150,000 purchase, spent about $7,000 on minor renovations, and rented it for $1,200 per month.
Here’s how the numbers worked out:
- Monthly mortgage payment (including taxes and insurance): $850
- Average monthly maintenance: $100
- Property management: Self-managed initially
- Monthly cash flow: $250
Five years later, the property had appreciated to $190,000, and I was able to increase the rent to $1,400. My mortgage payment remained the same, increasing my monthly cash flow to $450.
This is a simplified example, but it demonstrates how buy and hold investing can work over time to build both equity and cash flow.
Common Mistakes to Avoid
In my years of investing, I’ve seen people make these common mistakes with buy and hold properties:
- Ignoring cash flow for appreciation: Never buy a property that doesn’t cash flow positively, hoping appreciation will save you.
- Inadequate reserves: Not having enough money set aside for vacancies, repairs, and capital expenditures.
- Poor tenant screening: Accepting tenants without thorough background checks.
- Deferred maintenance: Putting off small repairs until they become expensive problems.
- Failing to adjust rents: Not increasing rent to match market rates when appropriate.
Final Thoughts on Buy and Hold Real Estate
Buy and hold real estate isn’t a get-rich-quick scheme—it’s a proven, long-term strategy for building wealth. The beauty of this approach is that it combines multiple wealth-building mechanisms: appreciation, cash flow, loan pay-down, and tax benefits.
While it requires patience and careful management, the rewards can be substantial. Over time, your properties increase in value while generating consistent income, creating a powerful engine for financial independence.
Whether you’re looking to supplement your current income, save for retirement, or build generational wealth, buy and hold real estate investing deserves serious consideration as part of your investment strategy.
Ready to take the first step? Start researching locations, crunching numbers, and building your real estate team. Your future self will thank you for the wealth-building journey you’ve begun!
What is the Buy and Hold Strategy?
The buy and hold strategy is when you purchase a property and plan to hold onto it long-term (and perhaps even for a lifetime).
When buying properties using this strategy, you want to be sure that the property generates positive cashflow. This makes it easier for you to hold onto the property for a long period of time.
Imagine owning a property that loses money every month. You would need to cover this loss with the money that you make from your regular job for as long as you own the property. If you were to lose your job or if you couldn’t work because you became ill, you would have to cover these losses from your savings or worse, sell it at a loss.
You also want to buy properties that give you as much cashflow as possible. This is to not only ensure that you can cover unexpected expenses, but also maximize your return on investment using this strategy. We personally aim for at least a 10% cash-on-cash return. We say “at least ” because this is an initial target. This is discussed in more detail in a previous article.
Most real estate investors use a cash-on-cash calculator (COC) to determine whether the property will perform to their expectations. Make sure to download a FREE copy of our COC below
How Does Buy and Hold Compare to Other Investment Strategies?
This is when you buy a property and wait for it to appreciate in value before selling. It’s common for these properties to have negative cashflow. So one challenge with this strategy is the cost of holding onto these properties (mortgage, taxes, etc.), sometimes for years, or even decades.
I pursued this strategy in Florida before the market crash in 2007. Between 2004 and 2007, it was common for these properties to double or triple in value in one year. However, once the market crashed, the values of these properties declined by 90% or more. Properties I bought for $125,000 were valued at less than $5,000.
Because I bought raw land, there was no chance to collect rent to cover the mortgage and taxes. At one point, I had to work 26 hospitalist shifts every month in order to cover the mortgage payments. I have since sold these properties at a considerable loss. That’s after paying the mortgage and property taxes for over 10 years. You can read more about my experience HERE.
Some would call appreciation plays to be akin to gambling and, based on my experience, I would agree.
This is when you buy a property, fix it up and hopefully sell it for a profit. There are many risks involved with flipping, and success with this type of investing requires considerable skill.
First, you have to be able to properly assess the “bones” of the property. Is the foundation solid? How are the main structural elements of the house? Is there any evidence of leaking in the basement or from the roof? If you get any of these wrong, you could go way over budget on your renovation. You could also lose money on the flip.
Second, you need to be able to properly assess the renovation cost. Coming up with accurate estimates for both materials and labor costs usually requires years of experience to get right. You also need to build in a cushion for unexpected issues that often arise in these types of projects. Getting any of these wrong means losing money on the project.
Third, you have to fix up the property in a way that appeals to a broad audience. This requires you to have some interior design skills. Getting it wrong means that the property doesn’t sell or it sells for less than expected.
Last, you need to be able to come up with an accurate market price for the property once the project is completed. This requires you to be able to assess comparable sales (comps), as well as understand the “x-factors” that will raise the value of the property above the comps. If you price the property too high, you run the risk of having the property sit on the market, adding to your selling costs because you have to continue to pay financing costs, insurance and taxes until you sell the property.
In addition to the above risks, another problem with this strategy are the costs you incur every time you sell. These include selling costs and taxes.
Selling costs include real estate agent fees (usually 6% of the sale price, paid by the seller) and closing costs (usually 2-5% of the sale price). Some states like Washington have a real estate excise tax of 1.28%. Add it up and your selling cost can be as much as 10%.
Your taxes on the sale depend on how long you hold onto the property. If you own the property for less than a year, then you pay short-term capital gains taxes, which are taxed at ordinary income tax rates. If you own the property for more than a year, then you pay long-term capital gains taxes at a rate of 15 or 20% depending on your income level plus an additional 3.8% if your income level is above a certain threshold.
Some believe their home is an investment – we generally do not. The reason is that most overspend on a personal residence. This results in a large down payment and a high monthly mortgage payment, which makes it hard to save enough for investments.
It’s certainly possible for you to make money on your personal residence if it appreciates, however, this is a form of appreciation play. There is no guarantee that the house will appreciate. In the meantime, your down payment is tied up in the property. You are also stuck paying a large monthly mortgage payment.
There is one way to make this strategy work as an investment, which can be especially attractive for doctors who are just coming out of residency. It’s when you purchase a property with little or money down (using a doctor loan, an FHA loan, or a down payment assistance program offered by many employers), fix it up while living in it in order to build some equity in the property, and then eventually rent it out after you move out. You can repeat this process multiple times until you are in a better financial position. This is an efficient way to build up your investment portfolio because you are putting very little of your own money down and you are making improvements to the property while you are living in it. You also will get the lowest mortgage interest rates because the property will be owner-occupied.
If you want to vet some of our recommended vendor partners, be sure to check out our Vendor Directory to find lenders for both residential and commercial real estate, or personal lending.
When purchasing each property, you want to be sure that it will cashflow when you eventually rent it out. You never want to be in a situation where you buy a place, only to later find out that it isn’t even close to cashflowing. Also, you want to be sure that any improvements you make to the property are within reason. In other words, this isn’t your dream home, so don’t go over the top with expensive improvements. Remember, the more you spend on improvements, the lower your cash-on-cash return.
One variation of this strategy is to buy a multifamily property and live in one of the units. This is sometimes referred to as “house hacking.” The benefit of house hacking is that you get rent from the other units while you’re living in the property. We have personally house hacked before and found it to be a great way to live rent-free and build wealth.
How “Buy and Hold” Real Estate Will Make You Rich
FAQ
What is a buy-and-hold in real estate?
A buy and hold property is an investment property purchased with the intention of holding it for the long term, typically several years or decades, to generate income through rent and profit from its appreciation in value. This strategy contrasts with “flipping,” which involves buying, renovating, and quickly selling a property. Investors aim to benefit from steady cash flow from rent and capital gains from appreciation over time, according to Stance Commercial Real Estate, Nomadic Real Estate, and Mashvisor.
What are the cons of buy-and-hold?
The key risks include lack of liquidity, exposure to long market downturns, missed opportunities from short-term trading, and the psychological challenge of holding during downturns. Investors also face the possibility of choosing assets that underperform even in the long run.
What does “buy and hold” mean?
Why would you recommend buy-and-hold?
Holding and buying consistently insulates you from incorrectly timing the market and getting stuck. It also prevents you from having to worry about taxable events and wash sales. It’s the easiest way to do it, and if you are in a major index it’s usually the best strategy.