Buy, hold and manage

By: J. David Chapman/April 20, 2023

My strategies in real estate investing are sometimes looked at as old-fashioned or old-school. Maybe so, but it has worked for me and my family. I teach a strategy of buy, hold and manage. Another strategy, known as flipping, tends to be more popular and certainly more fun to talk about.

Flipping refers to the practice of buying a property with the intention of quickly reselling it at a higher price for a profit. There are legitimate players in the market performing this strategy, making a profit through the appreciation of the property value, or by adding value to the property through renovations or improvements.

Another option is to buy and hold the property. This strategy involves purchasing a property with the intention of holding onto it for a long period of time, usually several years or more. It is based on the premise that real estate is a long-term investment that tends to appreciate in value over time and provides a steady stream of cash flow in the way of rental income.

The key to success with the buy-and-hold strategy is to carefully perform research before purchasing a property, ensuring it is located in an area with strong potential for appreciation and rental demand. The terms of the financing are also critical because the intent is to keep the property and loan in place long-term. After acquisition, the real value-add comes in management of the asset. The property must be maintained in good condition and managed in a way to keep tenant satisfaction high, thereby ensuring rental income remains steady over time.

Owners will find tax advantages through deductions, appreciation through natural inflation, value-gain through proper management, and equity-gain with rents paying the debt service. Extra income can be used to cover the costs of maintaining the property or reinvested into other real estate opportunities.

The buy-and-hold strategy requires a long-term investment mindset and a willingness to tolerate fluctuations in the real estate market. It also requires a certain patience in dealing with late rent payments, unreasonable tenant expectations and a lack of respect for the property from tenants. However, for those willing to hold onto a property for the long-term, the strategy can be a very profitable and low-risk way to invest in real estate.

J. David Chapman is a professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).