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There are plenty of investors out there that believe that the “buy and hold” method is by far the best way to invest in stocks and real estate alike. This method is perfectly suited as a rental property investment strategy because you can be generating monthly income while building equity and (hopefully) benefiting from long-term property appreciation.

Are you wondering how to buy and hold rentals in order to build wealth over time?

If so, you’ve come to the right place. Let’s dive in to take a look at the pros and cons of the buy and hold strategy for rentals, essential tips, and more.

What Is the “Buy and Hold” Rental Property Investment Strategy?

rental property with red roof wood siding
The buy-and-hold rental property investment strategy means that you don't sell your rental at the first sign of a market downturn. Instead, you hold on to the property for years until you choose to sell, refinance, or pass it on to your heirs.

One common tactic used by real estate investors is the buy-and-hold strategy. Through this method, investors aim to both build long-term wealth and generate recurring rental income.

How long you hold for after buying is up to you. Some investors aim to hold properties for five years or more. After a certain amount of time has passed, they might choose to sell when the timing seems ideal.

Others, however, rarely sell their properties. Instead, they pull equity out of their home after they have built up a sufficient amount and then use those funds to purchase another property. This is a process that can continue practically ad infinitum. If you know someone that has acquired a thick real estate portfolio, there’s a good chance this is how.

Buy and Hold: The Pros

buying and holding rental property in san francisco golden gate bridge
If you're wondering whether the buy and hold strategy can help you build wealth, consider the position you'd be in if you'd bought Bay Area property in the 90s.

When it comes to both the stock market and real estate, you’ll find proponents arguing that buying and holding is by far the best strategy in the long term. As opposed to faster-moving real estate investment strategies, such as fixing and flipping houses, the buy and hold method offers a number of benefits.

Long Term Property Appreciation

One of the advantages of buying and holding rental properties is that it can help you build wealth. Between Q4 2001 and Q4 2021, the median sales price of homes in the US has increased by more than 238%.

What this means is that a property you purchased two decades ago for $200,000 would be worth around $476,000 today. That means that the property would have appreciated $276,000 while you owned it.

Of course, historic appreciation isn’t the only factor here– how much the property is worth would also have to do with factors such as how well-maintained it is, whether the neighborhood has improved or been in decline, and more.

Monthly Rental Income

family in rented home owned by buy and hold investor
On top of the potential for property appreciation, buying and holding rentals also let you collect monthly income in the form of rent.

The potential for long-term property appreciation is, in itself, a compelling reason to buy and hold rental properties. However, on top of possibly gaining from appreciation over time when you sell or refinance the property, you can also receive a recurring monthly rental income.

With a well-managed property, you can receive consistent income every single month. While the average rent price varies greatly depending on location, rents across the U.S. have risen at a higher than usual rate of increase over the past year. As of June 9, 2022, the median listed rent for an available apartment exceeded $2,000 a month.

Both the rental market and the housing market have been in overdrive since the pandemic, and no one knows for certain how everything will shake out over the next few years. That being said, with some markets experiencing annual rent increases up to 33%, you can see why bad news for renters sounds like music to the ears of many rental property owners.

High ROI

rental property with balconies and bright colors owned by buy and hold investor
Compared to other investment strategies, rental property ownership has historically shown an impressive ROI.

One essential metric to understand when you’re first getting into rental property ownership is return on investment (ROI). This is a measure that compares the cost of the investment to the amount of profit that was made from it.

Historically, buy and hold real estate offers a high ROI compared to other popular investment strategies. For example, the current 20-Year Treasury Rate (as of June 20, 2022) is 3.55%. That means that if you purchased a 20-year treasury security instead of a rental property and held it to maturity, the interest income would be $7,100 at the current rate.

Buy and hold real estate, on the other hand, often offers a significantly higher return on your initial investment. Over the past twenty years, the median sales price of homes in the US has increased by more than 238%.

Potential Inflation Hedge

In May 2022, the consumer price index (CPI) stood at 8.6% year over year. This is the largest increase in a twelve-month period since December 1981. You’ve likely felt the impact of this in just about every corner of your life as a consumer, and it means that any cash you’re holding is losing value by the day.

Historically, the buy and hold real estate strategy has acted as a hedge against inflation. Housing prices have increased at a greater rate than inflation over the past twenty years. On top of that, you might be able to pass annual increases in inflation to a tenant in the form of rent price increases.

Tax Benefits

There are a number of unique tax benefits that are offered by a buy-and-hold real estate strategy when compared to other forms of investment. These include:

  • The ability to reduce taxable income through depreciation deduction over a period of 27.5 years
  • The ability to deduct operating expenses, such as property taxes, repairs and maintenance, property management fees, and insurance
  • Potential exemption for rental property income from FICA taxes of Social Security and Medicare
  • Potential owner expense deductions, such as travel, continuing education, and home office
  • Potential pass-through deduction


One of the reasons that real estate is such a popular investment vehicle is that you can often purchase a property with a 20% down payment and start generating income from it right away. This means that you can own a $200,000 asset while only having invested $40,000, and your tenants can help pay your monthly mortgage payment.

On top of that, once you’ve built up equity in the property with the help of your tenants, you can borrow money against the property in order to finance more property purchases. If you’re looking to build an impressive property portfolio, this is one popular strategy.

Principal Pay Down

When you buy a home to live in, you most likely do so with an amortized mortgage loan. This means that you put a down payment down to purchase the property and then make monthly payments for both the principal and interest. While it’s possible to pay off your loan early as a homeowner, it can be difficult because the cost is coming right out of your pocket.

If you purchase a rental property with a mortgage, your tenants can help you pay your mortgage payments. Depending on how much your mortgage payment is, how much you charge for rent, how many units are in the building, and your operating expenses, you might also be able to make a hefty profit on top of covering the mortgage.

If you choose to, you could take your profit to pay down the mortgage faster. Because of the way that amortized loans work, you can save a ton of money in the long run by paying your mortgage off faster. Many people don’t realize just how much money they are paying in interest over the life of the loan, and fewer still realize how advantageous it can be to start overpaying towards the principal early on in the process.

Some rental property investors choose not to overpay towards the principal even though they can afford to do so. The logic here is often that the money that they would put toward paying down the principal can make them more money in another property, the stock market, or elsewhere.

Potential For Increasing Profits Over Time

When you run the numbers to determine how profitable a potential rental property could be, you’re basing it on the current rental rate you expect you can charge. However, depending on the way that the local rental market changes over time, it’s possible that your profits could increase over time.

This has been the experience of many current rental property owners in hot markets. As discussed above, rents have increased quickly in some areas since the start of the pandemic, and the tight housing market has only put more pressure on the rental market.

If you’re able to purchase a property in a location that you expect will have increasing rent prices over time, this means that the investment can leave you with more income as the years go on. A property that will give you positive cash flow to start with that you anticipate will become a more desirable rental after a few years is good news all around.

That being said, the opposite is true as well. You could buy a property with an expected monthly rental income only to have to reduce rent prices over time. There are a number of factors that influence the price of rent, having to do with the property itself, the local market, and the national market. These include:

  • Desirability of the location
  • Number of bedrooms
  • Number of bathrooms
  • Condition and curb appeal
  • Appliances and amenities
  • Pets allowed
  • Square footage
  • Parking
  • Population density
  • Crime rate
  • Municipal rates
  • Inflation
  • Supply and demand

It’s also important to be tactful when choosing to raise rents on your rental properties. If you’re raising rent with existing tenants, you’ll want to check in with your state and municipal laws about what is and isn’t allowed. Laws about rent control and rent increases can vary depending on location. In general, you can’t raise rent within the terms of a lease and cannot do so if it could be construed as retaliation against a tenant.

You’ll want to make sure you provide plenty of notice and that your rent increases are made on a consistent basis. Be communicative with tenants about when you’re raising the rent and go out of your way to explain how the new rent rate you’re charging is competitive for the area.

You commonly need to give tenants at least thirty days' notice before their lease is up for renewal or expires if you’re going to raise rents. However, the requirements vary depending on the state or city your property is in.

Buy and Hold: The Cons

Of course, when there’s an upside there is usually also a downside. There are drawbacks to the buy-and-hold rental property strategy, and it’s important to weigh out the pros and cons before jumping in.

Managing Your Properties

Being a landlord isn’t the easiest gig. You have to find tenants, collect their rent, deal with repairs and maintenance, and more. For this reason, it’s common for landlords to hire a property management company to take care of the day-to-day operation of the rental.

There are pros and cons to hiring property management companies as well, and only you can decide whether it’s worth hiring out this service or not.

Real Estate Is an Illiquid Asset

One of the major downsides of the buy-and-hold investment strategy is that real estate is considered an illiquid asset. When you own treasury bills or stocks, you can typically sell them easily. Real estate usually can’t be sold much quicker than thirty days, and can take quite a bit longer depending on the location, price, market, and condition of the property.

Real Estate Market Cycles

Historically, real estate markets move through a cyclical pattern of recovery, expansion, hyper supply, and recession.

What this means is that you might not be able to profit as much as you were hoping if the market is trending downward when you’re ready to sell. Depending on market conditions, it could even mean selling at a loss. It’s therefore important to keep an eye on market cycles over the long term when practicing this method.

The Risk of Neighborhood Decline

The location of your rental properties can have a lot to do with your ability to turn a profit with them. Neighborhoods can change over time, and the cute little duplex you bought in a safe neighborhood twenty years ago might now be on the crime-ridden side of town. As you might imagine, this can have a huge impact on property value, rent prices, and your ability to find responsible tenants.

Neighborhoods can, of course, move the other way as well, which can work very much in your favor as an investor. The point is that you should be aware of the way that small changes like an increase in property taxes or a major employer leaving the area can radically impact your investment.

Types of Buy and Hold Real Estate

There is no “right” type of property to buy and hold. Different types of real estate have their advantages and drawbacks, and you’ll need to decide the right choice based on your goals snf comfort level.

Single Family Homes

Single-family homes can be a good place to start for new investors. You’re only dealing with one family or group of tenants at once, which can keep being a landlord manageable when you’re just beginning. That being said, you lose some of the benefits that come from purchasing multiple units in one real estate transaction and the efficiency that can result from multifamily units.

Unless the property is in a market where short-term rentals are appealing to visitors and tourists, you’ll likely be searching for a long-term tenant to fill your single-family home. If you take the time to find tenants that are a good fit, you might be able to benefit from long-term tenants that take care of the property and pay their rent on time.

Turnkey Properties

Another strategy some investors choose to follow with buy and hold rentals is purchasing turnkey properties that already have a property management company signed on. These properties sometimes already have tenants, which can be appealing to investors that are looking to buy rentals without having to do much legwork.

Turnkey companies will buy houses that need some work at below-market prices. They’ll then fix up the properties which might involve significant systems repair or installation. Finally, they will sell the properties directly to investors while continuing to manage the properties.

If you want to be more involved in the process of rental property ownership, this likely isn’t the right choice for you. The purchase price of a turnkey property will reflect the fact that the company did the dirty work of major renovations, so people who are looking to keep the purchase price as low as possible also might want to stay away from that strategy.

For people that want to invest in rental properties but don’t want to make a second job out of it, it’s possible that a turnkey property could be a good option.

Vacation Rentals

Whether you rent out your property through Airbnb, VRBO, or through old-fashioned word of mouth, you could also choose to buy and hold a vacation (or short-term) rental property. There are pros and cons to short-term rentals compared to long-term rentals, so it’s important to do your research before assuming one option is better than the other.

One downside of short-term rentals is that they can be a lot more hands-on since guests are turning over much more frequently than with a regular rental. Some investors choose to hire short-term rental property management to deal with this, but it’s pricey enough that you’ll want to factor that in before making a purchase.

If your property is in an up-and-coming or well-established vacation destination, you might find that renting it out as a vacation rental is appealing compared to having long-term tenants. You can buy and hold the property just as you would a long-term rental, and, if you play your cards right, benefit from both monthly income and a big payout down the road when you sell.

Commercial Real Estate

Commercial real estate isn’t usually where beginner investors start building their portfolios. However, it’s worth noting that one can choose to buy and hold commercial properties in addition to residential properties.

Multi-Family Buildings

Buying a multi-family building can be a bit more difficult than purchasing a single-family home and typically requires a higher upfront cost. They also tend to be harder to sell than single-family homes when you do decide to cash in your properties. However, when done right, you can enjoy multiple income streams each month when you have several units in one building.

Tips For Buy and Hold Investing

Buying and holding rental property has been a great way to build long-term wealth for the last many decades. It isn’t as easy as buying any old property and throwing up a “for rent” sign, though. Here are some tips to help you find success in the world of buying and holding rentals.

Create a Business Plan

When you purchase a rental property, you’re starting a business. Take it seriously and create a business plan that outlines both your short-term and long-term goals for rental property investment.

Thoroughly Research Neighborhoods

As mentioned above, neighborhoods have the ability to change drastically over time. Ultimately, it’s more important to carefully select the city you invest in as well as the specific neighborhood when choosing a rental property than the property itself.

If you’re fixing and flipping homes, you don’t have to worry about the way the neighborhood changes on a five, ten, or twenty-year basis. As a buy-and-hold rental property investor, though, this should be one of your primary research projects.

You’ll want to consider factors such as job growth, population growth, and affordability when selecting an area to invest in.

Predict the Future

Sure, no one can predict the future. What you can do, though, is really nerd out on understanding how other investors predict future trends by analyzing past and current trends. By looking at data like housing price fluctuations, employment and population growth, house price index, and change in renter-occupied households, you can learn how to make an educated bet in the real estate market.

Determine the Right Type of Property For You

After you’ve figured out the neighborhood or area you want to focus on, you can work to determine the type of property you want to invest in. If you don’t want to do any work on a property before renting it out, you’ll want to find a property that’s already in move-in-ready condition.

Be honest with yourself about how much work you’re willing to do (or hire out) when selecting a rental. It can be tempting to get a deal on a home that needs to be gutted and rehabbed, but it’s important to understand both the monetary and time costs of such an endeavor.

Run the Numbers

Buying a rental property can be exciting, and it’s easy to start making decisions about which property to buy that are based more on feelings than the cold, hard truth: the numbers.

It doesn’t matter how much you love a neighborhood or the emotional attachment you’ve built with a property that has a particularly stellar design. These types of factors are very reasonable to incorporate into your decision when buying a personal property, but not with a rental property.

This isn’t your home, it’s an investment. You’ll want to run the numbers and make sure that the property you select will generate positive cash flow and that the location is showing all of the signs of an appreciating or stable market.

Decide How to Finance the Purchase

Is it better to buy in cash or to use a mortgage? You can find people on both sides of the debate and some compelling reasons to fall in either camp. There are benefits and drawbacks to both strategies, so you’ll want to weigh out which makes more sense for your investment goals.

If you choose to get a mortgage for your rental property, it’s important to understand that lenders typically see investors as riskier borrowers than people that are buying a house to live in it. This means that the criteria to qualify will be stricter and the rates will be slightly higher.

If you’re struggling to qualify for a mortgage through traditional lender financing, there are other options out there. These include private money, hard money, pulling in partners, or seller financing.

Have an Emergency Fund

Having a capital reserve account (and funding it) can help you deal with unexpected repair costs that will inevitably pop up. This is also a great way to save money for major repairs that you anticipate will need to be done down the road.

Run a Comparative Analysis

If you’re working with a real estate agent and you’ve found a property you’re interested in, you can have them draw up a comparative market analysis to see how the property compares to other similar homes in the same area. If you’re going it alone, you can run a comparative market analysis on your own.

By understanding where the property you’re interested in falls within the local comps, you can get a better sense of how much you’re willing to pay for the property and how you want to approach negotiations.

Decide Whether You Want to Hire a Real Estate Agent

Some real estate investors choose to go it alone when buying a rental property rather than hiring a real estate agent. While there might be some benefits to this route, it’s important to understand that real estate agents can offer valuable services that might be worth paying for, such as helping you find properties that fit your criteria, negotiating on your behalf, and guiding you through the process from start to finish.

Make an Informed Decision About Management

It’s a good idea to decide whether you want to hire property management before you select a property. If you’re buying a rental property remotely, the choice to hire property management is a no-brainer. If you’re buying a single-family home just down the street, however, you might choose to manage the property on your own.

Property management comes at a cost, but many investors feel it’s worth it, particularly when they have a number of properties in their portfolio. By deciding whether you’ll hire property management before you make the purchase, you can factor any associated costs into your financial analysis.

Focus on Finding Great Tenants

Having great tenants is one of the most important factors you can have in your favor when it comes to owning rental properties. This means purchasing a property in a location where you will be able to attract high-quality, reliable tenants. These are people that pay rent on time, let you know if there’s an issue with the property, and generally take care of the place.

It doesn’t matter how great a property looks on paper if you can’t fill it with good tenants. There are countless stories online about nightmare tenant situations, and one bad tenant can quickly turn your best-performing investment into a catastrophe.

Are You Ready to Buy and Hold?

Just like day trading seems to be more exciting than long-term investing, it’s easy to get enticed by short-term property investment strategies like flipping houses. While there’s nothing wrong with going down that path if you know what you’re doing, you’re also potentially taking on more risk. The buy and hold strategy won’t put hundreds of thousands of dollars in your pocket in a few months, but it can definitely be a vehicle that allows you to earn a consistent income and benefit from appreciation down the road.

No matter what stage you’re at in the process of purchasing or operating a rental, it’s never too late to run the numbers. At the end of the day, this is an investment, and it’s essential that your property is helping you reach your financial goals.

Our rental property calculator has everything you need to quickly identify whether a property is a good candidate for your short-list. If you already own a rental property, you can use this calculator to see if there are places where you could cut costs or increase income to make your numbers more favorable.

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Written By:
Sophia Merton
Sophia received her BA from Vassar College and is a real estate investor and researcher. With more than ten years of experience owning and managing investment properties, she has gained valuable insight into the pros and cons of operating rentals. Sophia is dedicated to helping others create wealth through real estate and aims to provide straightforward information about every aspect of rental property ownership.
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