Buy-and-Hold Your Rental Property for Profit: How-To 101

The buy-and-hold strategy in real estate investing is something many know about, but few know how to truly master.

Sure, everyone knows this approach can grant you a high ROI. However, what some don’t know is just how careful you must be to reach those results.

This strategy has many gears that work together to keep the greater machine running. If one goes out of place, the whole operation could all go spinning out of control. That’s why it’s so essential to get your buy-and-hold right. Let’s walk through what exactly you need to do to achieve a successful buy-and-hold in real estate investing.

Main Takeaways

• You need to factor in various properties’ walkability, safety, neighborhood trends, and other factors when choosing the right rental property.
• It’s crucial to consider marketing, maintenance, remodeling, and other costs when creating a budget.
• Brainstorm the best way to fund your investment (ex: hard money loans).
• It’s a good idea to hire a property manager to maintain tenant satisfaction and retention.

1. Find the Right Rental Property

Your rental property is the bread and butter of your buy-and-hold investment. So, it’s crucial to make the right choice. As experienced hard money lenders in Maryland, we can show you some ways you can more easily find the perfect pick.

Choose the Best Possible Location

As they say, location, location, location! The location of your rental property investment can make or break your success.

With the buy-and-hold strategy, you’re playing the long game. So, you want to get a property in a nice enough location, but not so much that you’ll have to pay exorbitant investment purchase, loan, and mortgage rates in the future. Plus, affordable locations may have higher appreciation potential. You might want to focus on places with the following qualities:

Rental Property Qualities to Prioritize

1. A Good First Impression: What initial impression does the area give you? Think from the tenant’s perspective because that initial mental snapshot will stick with them.
2. Downward and Upward Trends: If you observe a demonstrated demand for your neighborhood, that gives you a built-in audience. However, if residents have run away in droves, it can be harder to find renters. Furthermore, the local economy’s health, cost of living, and average home appreciation trends will drastically impact your prospects.
3. Assess Your Property Type’s Average Rent: The average rent will serve as a baseline for how much you can charge for rent.
4. Neighborhood Safety: If the neighborhood has high crime rates, people may hesitate to rent in your target location.
5. Walkability and Portability: Many people want a walkable rental property. That is, they want places within walking distance of grocery stores, banks, and other basics. Also, they need access to public transportation and commuter highways.
6. Local Attractions: If there are local attractions or activities nearby, like parks or shopping centers, that will draw renters to your property.
7. Property Features and Amenities: Look for features that match your target renters’ needs. For example, if your rental property is in a college town, your amenities shouldn’t be geared to a 30-something with kids.

2. Make a Budget

Your expenditure on your rental property will influence your buy-and-hold earnings. So, you should have in hand a concrete idea of what that expenditure will be like. Even if you don’t know the exact numbers now, you should still make your best, most realistic guess. Here are the costs you should know about.

Costs to Keep in Mind

1. Initial Costs: Of course, you should factor in the purchase price. But that’s not all. Next, you should consider the costs attached to that sticker price, like loan-related costs, maintenance and remodeling fees, and taxes.
2. Rental Period Fees: Also, think about your costs when your rental property is open for rent. Along with the above fees, you must remember staples like insurance premiums, cash flow, and marketing costs.
3. Check for Profits: Finally, as obvious as it might sound, make sure your rental fee is bigger than the costs you incur. There’s no point to your real estate investing venture if you pay more than you profit.

3. Fund Your Venture

Now that you know your buy-and-hold budget, you need to put it to use. It’s time to decide how you’re going to fund your investment.

Many people have the misconception that traditional buy-and-hold financing is their only funding route. This can deter some from moving forward because traditional financing takes such a long time to secure. Furthermore, it can require a sizable down payment.

However, hard money loans can allow you to get funding within weeks. This way, you can strike while the iron is hot. You can use hard money loans as your access pass to your deal, here and now. Then, after a temporary waiting period, you can refinance and pay off the loan, all in a short timeframe.

4. Renovate the Property

Unless your rental property magically comes in tip-top shape, you need to add value to it. It doesn’t necessarily need the complete makeover of a fix-and-flip, but you do want to make it look decently marketable. You can achieve this by tweaking the flooring, walls, kitchens, and bathrooms to look presentable.

If you improve your rental property’s appearance, you can bump up your rent from 25% to 30%. So, make a list of the fixes you want to make and act accordingly.

5. Find a Contractor

After pinpointing your needed renovations, decide whether to fix said issues yourself or hire a professional.

If you do go with a contractor, make sure they are working on schedule and routinely review their work. Additionally, it’s a good idea to make a list of things you want the contractor to address. This way, your rental property will be tenant-ready.

6. Manage Your Units

Naturally, when you lease out your buy-and-hold rental property, it becomes your responsibility. This is where property management comes in. Some duties in this crucial role include tenant screening, tenant complaint addressment, rent collection, maintenance coordination, and bookkeeping.

As you can imagine, property management is no small task. Furthermore, the stakes are high, so there’s little room for error. If you don’t have the time and energy to oversee all your properties, you probably shouldn’t risk handling this yourself. It’s best to leave it to the professionals. We recommend our sister company, Bay Management Group, for Maryland real estate investing pros.

7. Expect the Unexpected

Rental properties can be fickle things. One day, they can be in flawless shape. The next, a pipe suddenly bursts, and the ceiling is leaking. Life happens.

So, it’s important to stay ready for this and keep a rainy-day fund for these surprises. If you don’t, you’ll be forced to scrape funds together at the last minute. Not only will this be extremely stressful, but it will be hard to make sound financial decisions under pressure. Even worse, if you address problems inefficiently, you could risk low tenant satisfaction and retention.

Fund Your Buy-and-Hold with MHML

You can better ensure your buy-and-hold success if you carefully develop your property and budget to meet your and your tenants’ needs. When you do your due diligence in the planning process, you can maximize your investment’s potential.

Hard money loans can be a great way for you to fund your buy-and-hold for real estate investing purposes. As we covered before, you can receive them and pay them off much more quickly than you would traditional loans. Even better, when you get loans from us, you also gain a connection with extensive experience in the real estate industry. After all, we aren’t just your lender in your business dealings. We’re also your partner in this industry. Call us today to increase your financial and social capital.