We invest in real estate to supplement the current income from a job we do not want to be working in. Or, even if you love working in your current job, it is still awesome making money before you get out of bed. And that is what buy-and-hold will give you.
When you buy a property to hold, you get passive income. From buy-and-hold investment properties, you are getting cash flow coming in every month, which will allow you to live life on your terms once you build up enough of that cash flow.
4 different ways to a buy-and-hold strategy
No. 1 – You are a high-income earner so you have enough from your 9-to-5 job that enables you to buy and hold numerous properties every year.
No. 2 – You have money in your existing place of residence so you can refinance through a home equity line of credit.
No. 3 – You have money in your 401(k), which you are transferring to a self-directed IRA, and that will enable you to purchase buy-and-hold properties.
No. 4 – You start buying, fixing and flipping. Last but not least, this is one of my favorite strategies, because you build lump-sum profits that allow you to buy and hold.
Yes, there are four different ways to go about it.
For example, one of my best friends is a neurologist who makes about $750,000 per year in income.
So based on the amount of money he makes from his 9-to-5 job, he’s got enough capital there every year he can tie up in investment property.
This is good especially here in the Midwest where you can buy a turnkey property for $50,000 to $70,000 and get 12 percent to 15 percent cap rate on your investment.
Just because he is a high-income earner, he can collect the money from his 9-to-5 job to purchase these buy-and-hold investment properties.
What if you do not have the cash for buy-and-hold?
Now for all of the other average folks out there like myself and others who make $40,000, $50,000 or $60,000 a year, it’s not necessarily that easy to save up the money to purchase one of these properties as a buy-and-hold.
What I always suggest to investors who are strapped for cash is that they buy fix-and-flips.
I suggest this because I do not believe in low-money-down or no-money-down strategies. Money makes money. You have to have money to make money. You have to work hard. You have to be frugal. You have to save every single penny from your work. Sell your belongings from your property, get out of your unnecessary car payment, whatever it takes to build up some kind of capital. Let’s say it is equivalent to around $50,000 – which here in the Midwest is a decent amount of money.
Then what you are going to do with those funds is buy a run-down, distressed property. Then fix it up to a decent standard and then you are going to sell it. And when you sell that property you are going to make a lump-sum cash profit. You are going to repeat that same process three times.
Buy, fix and sell three times, then hold
Now, this fourth property you are going to buy and fix, you are going to hold. You are not going to sell it. You are going to hold that property to get cash flow. Cash is king, and cash flow is queen.
Second, because you have already bought, fixed and flipped three properties you have made a lump sum cash profit you have made on every single deal. And that lump-sum cash profit has enabled you to continue buying, fixing and flipping. And that time has come right now where you can afford to buy, fix and hold one property without it affecting your buying and fixing and flipping more properties to come.
That would be my best advice for someone looking at investing in buy-and-hold investment properties unless you have a high income like my friend the neurologist. Or unless you have money in a 401(k) or a self-directed IRA, or equity in your own home.
The only other way I suggest you go about it is buying run-down homes and fixing them to sell them, to get a lump sum of cash profit. Once you have a lump sum of cash you can either buy-fix-and-hold or consider buying through a turnkey provider similar to what our company, Ohio Cash Flow, offers and there are other turnkey providers across the country who offer the same hands-off approach.