Why You Should Buy Investment Property And Never Sell It
Don't wait to buy investment property, buy investment property and wait.
You may have heard that saying before, or a variation of it at least. It implies that if you buy investment real estate and wait long enough, you will be rewarded financially.
In most cases that is true, as long as you can hang on financially, and perhaps just as importantly, hang on emotionally. In fact, this is the exact strategy that I have used to invest in real estate over the past 15 years. And to this day, I have never lost money on a single deal.
But what if I were to put one little twist on this strategy. What if you were to buy investment property and never sell it? Is that a good strategy? I think it is. Here's why...
1. If you have ever bought and sold real estate, even your own home, you know that the transaction costs associated with this undertaking can be, and usually are, significant. In fact, compared to other investment vehicles, real estate has the highest transaction costs by far. Inspections (environmental, structural etc.), appraisals, mortgage broker fees, mortgage points, purchase tax in some jurisdictions, legal fees and real estate agent commissions are just some of the costs that you will incur. However, if you buy and hold your investment property in perpetuity, you will avoid many of these costs.
2. If you have ever tried to time the real estate market (or any free market) you know that it is an impossible task. Inevitably you will buy too late and sell too soon, or vice versa. One way to avoid having to time the market on the "sell side" is to never sell. On the "buy side" you can employ one of two strategies.
First you can be patient and only buy when there is "blood in the streets". You may not catch the market at the very bottom but you can come close.
Another option would be to employ a strategy that is often used when investing in the stock market called dollar cost averaging. With this strategy you invest the same dollar amount at regular intervals (say every two weeks) no matter what the price of the stock or mutual fund is that you are buying. The theory is that by doing this you avoid trying to time the markets and increase your odds of making a profit over time.
The same strategy can be employed when you buy investment property. For example, you could plan to buy one piece of real estate every 6 months no matter what. This way you don't have to worry about timing the market.
3. If you buy investment property and never sell, you never pay capital gains tax.
4. Once the mortgage is paid off, all of cash flow comes right to you... FOREVER!
5. You can use the depreciation to defer taxes on the income from the property. And if you never sell, you never pay the recapture.
6. If you do want to take some cash out of the property, simply refinance it. The money you take out is tax free. (Keep in mind however, that there are typically restrictions on what you can do with this money.)
7. You get to "dance with the devil you know". Once you have owned several different properties you will realize that some simply perform better than others. If you hang on to the "good ones" indefinitely you avoid the "unknown" of the next property.
A final thought/question. Take a moment to think about this. Of all the people you know, who has made the most money on a single real estate investment?
My guess would be that the person you are thinking of bought the property and held it for a long, long, time. In fact they probably still own the property today. Am I right?
Don't wait to buy investment property, buy investment property and never sell. It's worth considering.
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