Why Buy and Hold Works for Real Estate, Not Just Stocks

As an investor, I’m a firm believer in doing what I can to minimize risk. And that includes taking a long-term approach to buying stocks.

Investors whose goal is to make a quick buck in the stock market often get burned. That’s because stocks can be very volatile, and sometimes, it can take years for a given stock to recover its value after a prolonged hit.

In fact, any money I have invested in stocks currently is money I don’t intend to touch for a decade or longer. That way, my portfolio has time to ride out one or more market downturns and grow over time.

I also make a point to only buy stocks I think have solid growth potential. If I’m convinced a stock has peaked, I’ll generally pass, because that doesn’t align with my buy and hold strategy.

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But “buy and hold” doesn’t just work for stock investors. If you’re been looking to get into real estate, it’s an approach worth taking there as well.

Why holding income properties for years is a smart bet

Some real estate investors are in the business of buying properties in disarray and flipping them at a profit. But that can be risky. And if you’re a fan of the buy and hold strategy as it applies to your stock portfolio, then you may want to take a similar approach with your real estate portfolio.

Home values have a tendency to increase over time. And so rather than get into house flipping, it could pay to buy one or more income properties, use them as an ongoing source of cash while they’re occupied, and then sell them at what could be a huge profit many years down the line.

Just how much growth has the housing market enjoyed through the years? In 1950, the median home value was $7,354, according to Better. If we adjust that figure for inflation, that equates to $79,063 in 2020 dollars. Meanwhile, in 2020, the median home price was $336,900. That represents a 326% uptick in growth since 1950.

Now to be fair, in 2020, home values started to soar on the heels of record-low mortgage rates. But even if we go back to 2010 — a time when the housing market was deep in recovery mode — the median home price was a still-impressive $221,800. And when we adjust that figure to 2020 dollars, it’s $263,604. That represents a 233% uptick in price growth since 1950.

That’s why buying and holding real estate could be a great wealth-building strategy for you. Granted, right now, home prices are extremely elevated. But if you wait a year or two, they might come down. And once that happens, scooping up income properties and hanging on to them for many years could be a wise bet.

Patience can pay off

If your goal as a real estate investor is to get rich quickly, then income properties may not be the best approach. But just as the buy and hold strategy has long worked out well for stock market investors, so too can it make you very wealthy in time in the realm of real estate.

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