Buy & Hold Rental Properties: 9 Compelling Reasons

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Making money through real estate investing can take time and patience, to grow signficant wealth. While many investors try to make a quick profit through flipping (and many succeed), others build a portfolio of rental properties, buying and holding them long-term. Eventually this creates a monthly stream of income large enough to retire on comfortably, often by the age of 55, 45 or even 35!
Want to learn why you should follow this strategy? Here is our countdown to the top nine reasons to buy and hold rental properties.
9. Mortgage Amortization
If you buy rental properties by borrowing money, your tenants will, over time, pay off your mortgage. Every year, more and more money will go towards paying down the remaining principal, reducing your debt (and increasing your net worth). If and when you decide to sell, your profit will be higher.
8. Tax Breaks
Being a landlord has some great tax advantages. You can write off your expenses, including repairs, insurance, mortgage interest, utilities, accounting and bookkeeping, travel, management fees; essentially any cost related to your real estate business. In the United States, you also get to depreciate your property on your income taxes. There are many tax breaks at your disposal, make sure to use them!
7. Inflation Hedge
Would you jump at the chance to buy your home today as it was priced 15 years ago? What about 30 years ago? When you buy and hold property, you can lock in the same monthly mortgage payment for thirty years, but rents can be raised to keep up with inflation. What a deal! Real estate is a great hedge against inflation. Real estate values also usually appreciate with inflation or more, keeping your net worth strong.
6. Rent Increases
Along with inflation, you can expect to raise your rental rates on a regular basis. The unit you currently lease out for $1,000 per month may rent for $1,500 in five years’ time as the neighborhood improves. There are no guarantees rates will always go up, but if your property is cash flow positive from day one, future rent hikes are gravy.
5. Leverage
As defined by Investopedia, “Leverage is an investment strategy of using borrowed money to generate outsized investment returns.” In other words, by borrowing money for your investments, in this case rental properties, you could make more money than you would otherwise.

As an example, let’s say properties are $100K each. If you have $100K to invest, you could buy one property in cash (1 x $100K purchase price) or five leveraged properties with a 20 percent down payment (5 x $20K down payment). The end result is either one property worth $100K, or five properties worth a total of $500K. When done right, which scenario do you think will generate the most income?
Just remember, leverage amplifies both gains and losses – it is more risky than cash alone. If you don’t make sound investments, you risk losing what you invested and what you borrowed. Ouch.
4. Appreciation
Before buying, you should make sure each rental property is a good investment and is cash flow positive. But there’s also money to be made with appreciation. If your real estate value goes up, you will make more money down the road, when you’re ready to sell. Appreciation takes time – you often need to buy and hold for years – or decades – before your property appreciates beyond what you paid in closing costs to buy it.
3. Passive Income
Income properties can generate a steady stream of passive income. Although it’s a lot of work at first when scouting potential investment properties and making offers, income properties become less time-consuming once they are leased and managed efficiently.
Many landlords manage their properties in just a few hours per month. Others need even less time, as they hire a property management company to make repairs, pay bills and collect rent.
2. Compounding
Linked to both appreciation and rent increases, rental properties take advantage of compounding. For example, let’s go back to the unit which rents for $1000 per month. If you increase your rent by just 3 percent each year, your yearly rental income would be:
Year 1 –   $12,000
Year 2 –   $12,360
Year 3 –   $12,730.80
Year 4 –   $13,112.73
Year 5 –   $ 13,506.11

Each year, you make more money since the 3 percent applies to the previous year’s higher rent. Smart investors take the higher rents each year and put it towards paying down their mortgage balances, which then shrink faster and faster. Another way to compound your rental cash flow is to use the extra income from your rental properties to fund the purchase of new rental properties, creating a virtuous cycle of income growth.
There’s a reason the great Albert Einstein is said to have called compound interest “the greatest mathematical discovery of all time.”
1. Cash Flow for Financial Independence
Investments that create a steady cash flow create peace of mind, independence and wealth. A portfolio of cash flowing properties is a great retirement strategy. Let your tenants pay for your living expenses so you don’t have to work anymore. The trick is to make sure you buy properties with such good cash flow that even after “unexpected” expenses like property repairs and vacancies are factored in, you still make substantial profits every month, on every property.

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