How to Acquire Rental Property with a Buy and Hold Loan

 In Lending

Real estate is a fantastic industry with a lot of opportunities. Because of this, you have many options available in starting your real estate investment journey. You could choose to become a wholesaler, flip houses, or set your focus on rental properties. Between these popular options, there’s one that stands above the rest in terms of popularity. 

Time and time again, first-time investors choose to focus on the lucrative option of rental properties. This allows them to bring in rent money while holding onto the property until it will be valued higher on the market and they can sell for more than they paid. 

To do this, you would “buy and hold” the property, which means holding it long-term as an investment rather than focusing on flipping and selling right away. Because this is such a popular option, there are loans tailor-made to this situation called buy and hold loans. 

Below, we’ll take a look at what precisely a buy and hold loan is, who they are designed for, how exactly to utilize one, and some benefits you can enjoy. Keep reading to find out all you need to know!

What Are Buy and Hold Loans?

First, it’s essential to understand what exactly buy and hold loans are as one of the loan options available to buyers. 

First and foremost, choosing this option is a residential real estate investment strategy. An investor finds a property to purchase that they plan on owning for a long time. This can be considered anything from five to thirty years. The property types vary, and can include apartments, single-family homes, or even multifamily options such as triplexes or duplexes. 

As the investor, you’ll ideally enjoy a steady income stream from these properties by charging rent. You will eventually reach a point where the property’s value will exceed the amount of money you’ve put into it. You can either sell for a profit or continue to collect rental income when this occurs. 

Rental income is crucial to this process since it doesn’t make sense for investors to buy a property only to leave it vacant. This could result in the building depreciating due to damage or disrepair, meaning that making a profit would be near impossible. 

This is where a buy and hold loan comes in. The amount of the loan, at a minimum, is designed to cover both maintaining and owning the property, including the monthly mortgage. The rent collected will then cover the monthly ownership cost plus extra, meaning you can enjoy some monthly cash flow as the investor. 

 

Who Are Buy and Hold Loans Designed For? 

In an ideal world, buy and hold loans are designed for people who wish to invest in real estate and plan to keep that property for a long time. Acquiring tenants who will pay monthly rent is also essential. 

Because of this, you need to make sure you are willing to go through that process, either by recruiting and managing tenants and the property yourself or by paying someone else to do so. You also need to guarantee that you will hang on to your new property for at least five years, preferably longer. This will ensure that you’ll see a return on your investment. 

If you’re thinking about owning the property for a shorter amount of time or if you don’t want to go through the process of dealing with tenants, then it’s best to explore some other real estate investment options. 

How to Use a Buy and Hold Loan to Purchase Rental Properties 

Now that you know what buy and hold loans are and who they’re for, let’s get into the details of how to use one. 

First, you’ll need to review what you can afford and consider what loan you can secure. Once you have the budgeting details, you can start shopping for homes. Take a close look at what properties are in areas you think will only become more desirable with time. This could be the most significant source of profit when it comes time to sell. 

Once you’ve secured the loan and purchased a property, you can begin advertising it as a rental property either independently or by connecting with a real estate agent. 

Advantages to Buy and Hold Loans 

There are many benefits to taking advantage of buy and hold loans. Some of these include: 

  • Rental Income. By charging rent for your property, you’ll be able to establish a monthly, consistent flow of cash. This also means that you don’t need to wait a long time to see the financial benefits of your investment or collect revenue.
  • Passive Income. Suppose you manage to hire a rental property management company. In that case, you won’t need to worry about dealing with your property or tenants at all, making your monthly rental income truly passive.
  • Protect Your Investment Against Inflation. Your profits could increase even more if inflation increases, thereby protecting your investment portfolio.
  • Tax Benefits. There are a lot of significant tax deductions you can take advantage of if you own real estate. These can include property taxes, repair costs, and mortgage interest.
  • Financing. You can also help fund your other investments by investing in real estate. If you want to finance some additional real estate, you’re able to leverage the equity in your buy and hold property.
  • Appreciation. As time passes, properties grow in value if they are maintained well. This is the main reason that many investors choose to focus on buying and holding rental properties, in addition to collecting rent.

Find Buy and Hold Financing Opportunities

Ready to take on a buy and hold real estate investment? Then you’ll need to start with finding the proper buy and hold loans. If you think you’d be interested in this type of real estate investment, don’t hesitate to contact our team at Associates Home Loan and get more information today.

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