Buy and Hold: The Path to Investing Wealth

A few years ago, in the aftermath of the housing collapse of 2008-2011, a practice known

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as house flipping became almost a household term. Billed as a quick way to make money by “investing” in real estate, house flipping involved buying foreclosed and distressed properties for rock-bottom prices, making a few repairs and then selling them for higher prices. If the process worked, the flipper ended up pocketing a profit. But that’s all. Creating real wealth from real estate means investing for the long term: holding assets, rather than selling them fast.

Although house flipping and other kinds of buying and short-term selling strategies can yield an immediate profit, this is no true investment strategy. Jason Hartman’s investment strategies advise that the way to real wealth in rental real estate is to buy and hold as many properties as possible on a fixed rate mortgage, rather than sell them quickly for higher prices. Why?

Selling a property usually costs money. The flippers may be making a profit from the sale of a fixed-up house, but some of that profit will be devoured by the costs of closing a new deal. As often as the cycle is repeated, money will always be lost. Investors who purchase properties under whatever circumstances and keep them never have to factor those costs into their accounting once the initial sale takes place.

If you must make repairs on a house

in order to sell it immediately, you most likely won’t be eligible for the tax benefits associated with the repair and

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long-term maintenance of an income property you’re holding on to. Those expenses will be essentially out of

pocket, a risk taken in hopes of a big enough profit later on. Repairs and the costs of upkeep are tax deductible, with allowances for depreciation as well.

Short-term buying and selling of properties means you only take away the difference between your initial investment and the sale price, minus associated selling costs and the investment toward maintenance. But the income in income property comes from collecting steady rent checks from tenants over time, along with the associated tax breaks, bailouts and inflation-devalued debt. Buying cheap and selling quickly for less cheap offers no way to reap those benefits over the long term.

Investing in income property is not without risks. A particular market may suffer a downturn, or a property may stand vacant without rents for a time. But as Jason Hartman points out, diversifying your holdings in a variety of markets offers a way to avoid those risks, and allows for more opportunities to tap the expanding rental markets in many areas. Real wealth in rental real estate comes from making wise investments in viable properties that yield returns over the life of the investment – not by pocketing short-term cash from quick sales.

The American Monetary Association Team


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