Global Advice Center

Investment Properties: Long Term

Posted on Apr 11, 2010 06:13:33 PM

Buying investment properties for the long term takes a larger (and obviously longer) commitment than buying for the short term, but it’s also a lot less risky.

The reasons for this are twofold:

1. A long-term time horizon with regard to any investment will get you closer to the average return rate on that particular investment. In other words, the investment becomes less volatile over long periods of time. You’re less likely to miss out by selling during a flukish downswing in the housing market, but you’re also less likely to double your money in a year.
2. As you hold and rent out a property for a longer period, the portion of your profits that come from rental fees will increase. You’ll have regular tenants and word of mouth if you’re doing your job right as landlord (or if someone else is doing right for you), and your renters will net you a substantial income over a long period regardless of any short-term changes in the housing market. Your average rental fees will also be less volatile over the long term for the same reasons as shown in#1 above.

For these reasons, it’s usually best for beginning investors in the real-estate market to buy investment properties for the long term. This means at least 5 to 10 years, and don’t be afraid of seeing yourself with the same piece of property even 15 or 20 years down the line. If it’s profitable and you don’t need the money right away, it’s often a good idea to hang onto it. You can always hire a live-in manager to take over most of your landlord duties if you get tired of them; just make sure you can trust them to truly watch over your business.

That said, there are things to realize about investing long term, and not everyone will be best served by buying property at all. Downsides to investing in property long term include:

1. It takes a longer time commitment.
2. To keep the property value and rental fees growing, it will require routine and occasionally large-scale maintenance.
3. Similar to #2 above, it will also require cosmetic and functional improvements to maximize your return on the original investment.

Long-term real estate investment pays off; just make sure you know your financial needs in the future and don’t get yourself into a situation where you need to pull your money out before your investment has fully matured.

See the flip side of this idea in Investment Properties: Short Term.