When it comes to investing in your future real estate investing has multiple significant advantages over most other investment opportunities. While most investments offer either a consistent return or the potential for equity appreciation. Real estate offers both.
When people think about real estate investing, they often refer to the “Flip”. While flipping, when done right, is a great business, there are many cons of the flip to consider. Such as holding costs, unanticipated expenses, difficulty in selling and losing your profit to taxes.
What I would like to focus on is the “Buy and Hold”. Buy and Hold is a more passive investment strategy in which an investor buys a property and holds it for a long period of time, regardless of the fluctuations in the real estate market. This type of investment offers a positive cash flow from rents that not only offset the expenses and debt, but also provide a passive monthly income.
This provides the investor with a great option for building wealth and generating passive income on a monthly basis (see example below). This process is much slower paced than the flip because the value doesn’t come from the resell. The real estate market has little to no effect on your cash flow and there is less involvement needed to start seeing your return on investment.
Additionally, the amount of people looking for rentals has a positive effect on the buy and hold strategy. The rental market at the Jersey Shore has been red hot for the last few years. Rent prices have been on the rise and show no signs of slowing down any time soon.
Another reason to consider the Buy and Hold is the leverage it provides. For example, if you invest $20,000 into the stock market, and it goes up 10 percent, you’ve made $2000. If you invest that same money into real estate, you can buy a $100,000 property with an $80,000 mortgage. Let’s say it only goes up 5 percent, your profit is $5000. In other words, you’ve made a 25 percent return on your overall investment. The fact the stock market has a higher return on average is unimportant because your returns with real estate are based on a much higher amount than your principal investment.
To clarify, here is an example for an actual Buy and Hold I closed for an investor in June 2017. This was for a 2 bedroom 1 bath condo located in Brick that was completely turn-key.
Asking Price: $123,000 Purchase Price: $117,000 Money down: $23,400 (20%) Amount Financed: 93,600 over 30 Years Interest Rate: 4% Monthly Mortgage $446 Taxes: 3,006 per year or $250.50 per month. HOA Monthly Fee: $230 Home Owners Insurance: $500 per year or $41.66 monthly Total Monthly Investment: $969.03 Annually Rented: $1550 per month. Positive Cash Flow Monthly: $580.97 Positive Cash Flow Yearly: $6,971.64
With the above in mind, making a Buy and Hold type of investment is a beneficial way to building passive monthly income, as well as, your long term net worth.
If you are interested in learning more about investing, please feel free to contact me at Jhazelet@cararealtors.com or 732 685 7746.