MARKET BREAKDOWN
MARKET BREAKDOWN
Buffalo sits on the Niagara River, which flows between Lake Erie to Lake Ontario and forms the border between the state of New York and the Canadian province of Ontario. In this picture, both national flags fly in a local memorial park.
REGIONAL SPOTLIGHT: BUFFALO, NEW YORK
BUY & HOLD
A Brief Overview of Buy-and-Hold Investing THERE’S MORE TO THIS SIMPLE STRATEGY THAN MEETS THE EYE.
by Carole VanSickle Ellis
hen you hear the words “buy and hold,” you probably subconsciously insert the word “forever” at the end of the phrase. Most real estate investors do. However, there is far more to buy-and- hold investing than simply purchasing an investment property, making the mortgage payments for decades, and then either passing the property on to your heirs or selling it off during retirement to generate a cash windfall. Here are just a few of the options and outcomes available to buy-and-hold investors: CASH-FLOWING RENTAL PROPERTIES Most investors who purchase and hold real estate over the long term do so with the intention of paying the monthly mortgage payments and other maintenance costs on that real estate via rental income. Anything left over is “the cherry on top” for the traditional buy-and-hold investor, but today’s passive and active turnkey investors often flip that view and consider monthly cash flow to be of primary import while long-term appreciation is the “bonus.” PROFITABLE VACATION PROPERTIES Buy-and-hold investors often purchase second homes, vacation homes, or retirement homes using the same rental strategy as above. It works in many cases, but be aware that your renters will pay top dollar probably about the same times of year you want to use the property yourself. W
mortgage and your buy-and-hold property appreciates, you may opt to pull equity out of the property to purchase more property. Just be careful: If you’re counting on that equity being present in 20 or 30 years, you shouldn’t pull it out too often.
ONE INVESTOR’S TAKE:
Real estate is a great way to build wealth, but can be an awful way to keep it [if you cannot make yourself step back from buy-and-hold investments]. The “magic” is simply the leverage that is unique to real estate and allows you to build wealth fast…If you are in your 60s or 70s and still feel the need to self-manage, repair things, screen tenants personally, or appeal taxes, I advise you ring the cash register and enjoy life. - Steve Laube is a long-time advocate of buy-and-hold investing, but only so long as the market and strategy are a good fit for the individual investor’s goals and lifestyle.
LONG-TERM APPRECIATION AND THE ASSOCIATED PERKS
Say, for example, that you purchase 10 rental properties and hold them all for 25 years. The odds are reasonably good that at the end of that 25
difficulties for buyers moving to the area from other parts of the country. This could well mean that the market is able to maintain a delicate balance of strong rental returns for investors and strong attraction to and value for buyers since it seems quite probable that if the Labor Department’s views on recent employment numbers are accurate, the area could experience an influx of young, well-paid professionals in the next 12 months. Although this influx may be good for the local economy, current residents could find themselves priced out of
the market if home prices skyrocket. However, even on that front, Buffalo- Niagara area policy seems prepared. Municipal programs already in existence have successfully transformed more than one historic property from an aging, blighted building (or even train station) into mixed-use mixed- income developments and attractive, value-building park space. The Niagara Falls area in particular has excelled at combining public and private resources to good result: A recent project combined about $11 million from public sources with additional private
funds to renovate a hazard scheduled for demolition, an old public school, into a $24.4 million mixed-use mixed-income development. The city’s cost of demolition would have run more than $12 million. “South Junior High School is now the flagship for a residential neighborhood that has experienced over $40 million of investment over the past five years,” Niagara Falls mayor Paul Dyster said of the project proudly. In an area that retains the growth potential to support this type of strategic creativity, real estate investors may be counted upon to both remain active and thrive far into the future. •
time, but they do not mandate that you ignore great opportunities to sell should they come along. Always be clear about whether an investment strategy is still meeting your needs or is just old and comfortable. If the latter, consider whether the time may have come to make a sale and invest elsewhere. •
years, if you have made your payments and kept the properties occupied and updated, you could sell them for a substantial sum and use that sum in your retirement. Of course, unless you have been careful with your business structure, you are going to owe some pretty hefty taxes. STRATEGIC AND MARKET FLEXIBILITY Long-term investing strategies like buy-and-hold involve committing yourself to holding properties for a long
POTENTIAL REFINANCING OPPORTUNITIES FOR PORTFOLIO EXPANSION Over time, as you pay down your
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com.
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