I believe most of the long-term wealth in Real Estate comes from this buy and hold strategy. A person can do absolutely nothing, and be "wealthy" with this strategy.
For instance, let me illustrate with my family. My great grandfather was an ambitious man, and came to America in the late 1860’s. He was 13 years old, and squatted on the property for ownership rights. This was in California, and he ended up after 10 years having to pay $10 an acre for the property. He was a farmer who passed it to my grandfather, a farmer, who passed it to his children. My mother and her 3 sisters ended up with a portion of the ranch a little over a hundred years later. The land was being farmed about the same as it was over a hundred years ago, except now when it was sold, it sold for $1 per square foot, that’s $43,566 an acre. They each walked away from escrow with a check for over $1,000,000.00. I realize this may be a bit of an exaggerated example, but the fact is, my mother knew nothing about farming or real estate investing. However, she and her sisters were the prime beneficiaries of a long-term buy and hold strategy. Many families have apartment buildings, raw land and industrial property that has been passed down.
You can follow this same strategy, but accelerate the benefits by buying smart. Over the last 8 decades since the great depression, Real Estate has out-performed every other investment. While it has its market swings, it has always bounced back. Real estate is one of the only assets that you can buy that provides cash flow, capital appreciation, and tax savings all at the same time, and you can have someone else giving you those benefits because your tenant buys the asset for you. While many of the strategies shared in this course provide income today, the buy and hold strategy can, and does, provide long-term wealth for you, and your families. With that said, let me give you a few tips for maximizing returns with this strategy. Small Down Payments I like to get into investments with little or no money down with assumable financing, or take it subject to the existing financing, so the loan is not in my name. Even if you only hold it 5 years, you can build a big chunk of cash - if you buy right. Lots of Options Make Quick Sales
In some cases, if a 1031 tax-free exchange is involved, or there are other personal considerations I choose to get long-term financing, because I want to leverage my position. However, make sure you only leverage to the point that you are assured positive cash flow. Does the Property Give Cash Flow? You want to make sure you have put enough cash down or, better yet, structured terms up front so that it doesn’t cost you out-of-pocket each month. Graduate payments as the rents increase, if your purchase is Seller financed or lease optioned. Do whatever it takes to maintain break-even cash flow. Nothing can be more devastating to a long-term investment plan than negative cash flow. Don’t do it, if you can avoid it. There are places all over the country that you can still buy property for no money down, and have it give positive cash flow each month. The amount of cash necessary to put down in a deal will vary by market. I know of places that require 30% down, and they are quite often negative cash flow. Have a good reason if you go the 30% down route, or look in other markets. However, remember: real estate cycles. If Texas is down today, chances are it won’t be in a few years. Look for opportunities. Don’ t Bet on Appreciation When markets are good, it is sometimes easy to jump on the bandwagon, and think that values will continue to rise. Don’t bet on it. You want the investment to stand on its own feet, not speculative value. It is easy to get caught up in the "bigger fool" mentality as all markets go through cycles. In California in the late 80’s, values were appreciating 20% and even 30% a year in some markets and neighborhoods. In the early 90’s, it shot down the other way, and a lot of people got hit. I had a home that I had paid $265,000 for in 1990. Two years later, it was worth only $185,000. Now with California’s boom, it is worth close to $300,000. Time almost always bails out even bad investments in real estate. What you want to do is allow your tenants to pay for your investment over time. Even if a property didn’t appreciate a dime, if it was break-even cash flow, in 15, 20 or 30 years you would have a free and clear.
“Nothing can be more devastating to a long-term investment plan than negative cash flow. Don’ t do it, if you can avoid it.” Maintain Break-Even Cash Flow The Investment Should Stand on It’s Own.” asset that you could sell for retirement. With the way the stock market has been over the last few years, property sounds like a fairly safe investment strategy. The key is getting property that you can manage without a lot of time invested.