How long should buy and hold real estate investors hold onto their rental properties?
There are many debates over how long rental properties should be held. Some plan to hold onto their rental homes forever. Some recycle them depending on trends and cycles. Many that have sold call it their worst move ever. So what questions should buy and hold real estate investors be asking in order to get to the right answer?
Where is the Market Headed?
There are many questions and factors to consider when it comes to determining the optimal time to sell. These include: property condition, functional lifespan, highest and best use of a property, local population shifts, competition and more. However, without a doubt, the most pressing factor in deciding how long to hold onto a property is where the market and in particular home values are going.
People will soon be declaring that the new housing boom is “different this time” and can’t go down. History tells us otherwise. In reality, history suggests that housing cycles will continue to turn predictably. So where will the market be in one year? How about two, five, and even ten years from now?
Data suggests the U.S. housing market will be on an upward trend for another 7 to 15 years. Assuming cycles keep turning, as they have, we’ll seen another down turn around then, followed by another significant upturn. Knowing this can help buy and hold investors decide whether to ride out one or two cycles regardless of what happens. However, the right answer for individual investors really comes down to their goals and timelines.
What Are Your Goals?
So what are your life, financial and timeline goals? Do you have kids going off to college that will require additional income and perhaps liquidity and an equity cushion at a specific time? Do you have kids that will be starting businesses and families and that you’ll want to help with buying homes? What about aging parents that may need financial help? Answer these questions before you decide what to do with your property.
Aside from a few exceptions, this is the time to be buying rental properties and expanding portfolios. If there was ever a time to leverage, this is it. Bullishness by analysts, lenders, other investors and consumers will keep driving the market up and those that hold property now will reap the maximum rewards. In most cases, investors will want to go even above and beyond the base investments they think they’ll need for income in order to account for the unexpected later. Look for good ways to leverage, acquire and time your exit.
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