The buy and hold strategy is a great means to accomplish the goal of yielding returns and creating cashflow. It also provides the opportunity for you to be a landlord. The concept of a buy and hold strategy is that an individual purchases a real estate asset, such as a residential property, and doesn’t sell it, but rents it generate monthly cashflow.
In the pursuit of a buy and hold strategy, one of the main decisions to consider is to whether or not to utilize leverage. More properties can be invested from the distribution of your investment capital by funding your purchases. At the same time, a risk is more diversified and total returns will be increased in a market situation in which the value of an asset is increasing over time. Paying for the property in full reduces losses in a depreciating market. Returns will also be increased in a flat market because income isn’t going towards interest payments.
One of the advantage in the practice of a buy and hold strategy is the acquisition of tax benefits wherein the tax rate imposed to a long-term profit is zero. This occurs if the total of your income and profits position you between the 10-15% tax brackets. Another advantage derived from this strategy is protection from inflation, which means that as inflation increases, so does the rent for your property. This helps to generate added cashflow as you hold your property for rent. However, the risk of adopting this strategy is the possible incurrence of expenses in managing with tenants who cannot pay their rents as due.