The buy-and-hold investment strategy are the most common strategy in real estate because of how easy it is to understand. It simply involves buying a property and renting it in order to gain on the equity and possibly the positive cash flow. That’s it! So why doesn’t everyone do this if the strategy is so simple? Like all the different types of investment strategies there are calculated risks and when one doesn’t look at these risks it can lead to losses or increased debt.
This is especially true when there is regular addition and updating of new and old investment policies. Some policies are good for investors and some favor developers. This makes it much harder for those who wish to go into real estate investment. Therefore, one should start by crunching the numbers before starting to buy properties to see if they are able to meet these new requirements and still make a profit.
The main focus of buy and hold strategy with regard to commercial property is to purchase a Commercial Space for Sale in Noida and hold it in order for the equity to grow so that when the investor sell, they have a large return on their investment. Equity can be calculated and predicted to a certain extent which investors can combine with the knowledge of the market and calculate the right time to buy and sell thus maximizing their profits. Many people attempt to do this, especially when they see if the market is down and know it will rise soon after and jump at the opportunity for easy money. However, this is just one part of the calculation and many who focus only on equity often end up in failure.
The secondary focus with this strategy is to make a positive cash flow where the income is greater than the expenses of running the property. This would provide extra income to the investors’ business or to them personally. Experienced investors enjoy building portfolios of properties where over time all the income values exceed the expenses for their properties and thus creating a large income for them to live on and invest in other projects.
So, what should be looked at in order to decrease the risk of failure? Expenses would be a good area to start. For example, it is not uncommon to see a property be vacant for at least a couple of months. Vacancy rate is important to consider since it takes into account the possibility of the property being without renters. What if there is an urgent need of renovation? Do you have enough money set aside to fix such problems? Expenses can easily determine quickly if you are able to afford to keep the property by seeing if there is a positive cash flow each month.
Besides just looking at the income and expenses what are the other key components to look at for this strategy? Buying the property at a low price especially when it is below market value is another component. The lower you are able to get the less you have to pay for your loan repayments, which contributes to less expenses per month. As well, this generates more equity which becomes more profit in the end when the investor finally decides to sell the property.
Appreciation and inflation rates should be something to look into as well. If both these rates are known then one can predict what will happen over the term of their mortgage. For example, if the property starts creating a debt after the third year then an investor could aim to sell within that time in order to gain from the equity before slowly going into debt. The same holds true for the opposite. If over the mortgage term the increase in income is growing then the investor could think of renegotiating their loan and holding on to the property for a longer period to increase on their return on investment and make a positive cash flow.
There will always be a risk when it comes to real estate investment, however, just spending the time to do the calculations can help you understand the market and limit the risk. If one can see the cash flow of a property prior to owning the property then it is much easier to predict whether it would be a good investment or one that would give you many headaches and increased debt.