There are cycles that occur in the real estate market dictate, methods and strategies that are most useful for growing wealth through real estate ownership. Now is one of those times where a prudent investor should stock of market conditions and view a recording of a traditional methodology. Of course I refer the strategy to "buy and hold."
Yes, though I walk through the Valley of the shadow of death will fear no evil: for me thou art; thy rod and thy staff comfort me. [Psalm 23: 4]
I had this quote from the Bible, but not for a religious reason to borrow, but because I know that my writing here is in the very the House real estate flipping, but I am about the religion of the long-term properties to preach. Heaven help me.
Away back, if (before 2002), you could monitor your local real estate market and occasionally find portfolio properties, you little under market, and that you pick up holding for a long period plan. Their primary ROI would be leveraged appreciation that would reach over time, but the cash flows were worked a nice Spiffer you, and to build a reserve for rainy days.
But once the market was booming, which find right gross rent multipliers were almost impossible. Properties were trading at prices far beyond what long-term investors keep one wanted to pay. So we stopped buy. And the wise waited for your day back.
I see evidence that returned your day now. In fact we now buy properties, result in the conservative annualized returns on investment of more than 25%. To demonstrate this, I will (over the next few blog posts) break a particular property and show how the return is achieved. But before we look at returns, we must look at the foundation of real estate buy and hold strategy.
Buy and hold strategy is simply put real estate not harder to understand than buy low, sell high. Unlike the property reflect the long-term hold Investor believes in a relevant market and while purchases occasionally slightly below market able to only merchants should reflect the competitive market of the property type. Buy and hold strategy is for true, fairly passive real estate investors.
The investor to understand cycles in the housing must for this strategy to work. By monitoring supply and demand, these investors know that the time to buy a buyer's market at the end when the glow of the offering with balance moves, but before the market has it implemented and values are low. Conversely the buy and hold real estate investor, know that the time to sell at the opposite end of the far cycle if care is scarce and properties are trading higher than the values for the replacement cost.
There are three basic rules that buy the property right and hold strategy must work. They are not difficult to understand but are mission critical:
Rule # 1 – Long term population trends must be rising. For property values rise in the long term must have the right of scarcity. Nothing better than population growth ensures the shortage of houses. Be always a correlation between population size and home sales (e.g. Phoenix, Arizona more home sales each year as two egg, Florida see).
Rule # 2 - the cost of construction will continue to rise over the years. Much as rule # 1 assume that everyone will increase costs the construction of new houses in the course of time. Given the large increase in the minimum wage in the past year, you can bet that in the long term costs will be affected, but not easy to see, until a housing market recovery starts to appear.
Rule # 3 - Value in the housing market will dictate normal rules for supply and demand. All free markets move in this way, but socialism could put a big damper on this. The prudent buy and hold Investor never his eye off the political climate, but regional and supraregional takes.
If you believe that these basic rules are sound, and you are the kind of market, where these rules are readily applicable, then you could do to keep a good candidate for a long-term strategy. Look forward to my next post for a case study of real estate buy and hold strategy.
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Visit Joe's website: http://www.manausa.com/
Joe Manausa, MBA is a 20 + year veteran of the real estate brokerage in the State of Florida and invested in real estate since 1992. He is a daily blogger content and invest, on real estate Analytics focuses into the residential market. Joe is a former U.S. Army Ranger and a graduate of West point so that it delivers with the goal of gaining a tactical advantage in real estate investment analysis.
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