What is buy and hold real estate investing?

May 13, 2025

10-minute read

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You may recognize "buy and hold" as a stock market investing term. It refers to when you buy a stock or another asset and keep it in your portfolio through market highs and lows. Buying and holding real estate involves the same basic concept, but instead you use the technique as part of a long-term strategy with an investment property.

Learning more about the buy-and-hold strategy can help you better assess whether this real estate investing technique is right for you, especially since real estate tends to appreciate over time. Holding onto a property long-term can generate steady rental income while building equity, allowing investors to ride out short-term market fluctuations, and potentially take advantage of favorable tax benefits. For these reasons, buy and hold is a popular approach for gradually building wealth through real estate.

What is the buy-and-hold strategy?

Buy and hold refers to a specific investment strategy where investors purchase property and retain it for several years or decades. The investor rents out the property and collects rental income. Over time, the property’s value may increase, allowing the investor to eventually sell for more than they paid for it.

While simple in concept, this strategy can align with both passive and active investing approaches. For passive investors, buy and hold offers the opportunity to generate steady income with minimal daily involvement, particularly when property management services are used. For active investors, the approach may involve managing tenants, maintaining the property, and making strategic decisions such as refinancing. In either case, it remains a flexible, long-term strategy that supports different investing styles.

Buy and hold vs. BRRRR

Besides buy-and-hold investing, you can consider the BRRRR investment strategy (Buy, Rehab, Rent, Refinance, Repeat). This type of real estate investing involves flipping a distressed property, renting it out, and getting a cash-out refinance for more rental property investments. A cash-out refinance allows you to pay off the original mortgage with money from your new, larger loan, then take the difference between the two mortgages in cash. From there, you can use the cash to buy a new distressed property and start the process over again.

How they differ

The biggest differences between buy and hold and BRRRR is that in the buy-and-hold process, you hold onto the property and in the BRRRR process, you don't. Furthermore, with the BRRRR, you continue to purchase new investment properties after the work on the current one is complete.

However, in both strategies, you evaluate to make sure you’re buying the right investment, monitor housing trends and in both cases, may eventually sell your real estate investment. The decision to pursue one strategy over the other often depends on an investor’s goals, timeline, and risk tolerance. Those seeking steady, long-term rental income with minimal turnover may prefer the buy-and-hold approach, while investors aiming to scale their portfolio quickly and are comfortable managing renovations and refinancing may find the BRRRR method more appealing.

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Pros and cons of buy-and-hold investing

Buy-and-hold real estate can be an effective strategy for building long-term wealth, but like any investment, it comes with its own set of risks and rewards.

Mitigating risk is a critical part of any real estate investing plan. While the buy-and-hold approach offers stability and the potential for consistent income, it also requires careful planning. Before committing to any investment strategy, it's essential to weigh all your options and consider your financial goals, risk tolerance, and time commitment. Real estate markets can shift, tenant issues can arise, and unexpected expenses can occur – so being prepared is key.

If you're just getting started or looking to expand your knowledge, be sure to check out our guides on real estate investing, how to evaluate a rental property, and the risks of real estate investing to help you make an informed decision.

Pros

Some investors may be attracted to the buy-and-hold strategy because it’s possible to generate steady income, while having long-term growth. It may also be less volatile as compared to more active real estate strategies. By holding onto a property, investors can ride out market fluctuations while still benefiting from appreciation and rental income. This strategy may appeal to those who prefer a more stable, risk-mitigated approach to real estate investing.

Let’s explore some of the benefits of buy-and-hold real estate investing.

Regular income

Buy-and-hold real estate has the potential to provide you with regular income for years. As long as you continue to have a renter, you can expect to collect regular income from your investment. That said, keep in mind that you’ll need to factor in the expenses of maintaining the property before buying rental property.

Potential for high returns

When you decide the time comes to sell your investment property, there’s the potential for a high return on your investment. Of course, it’s all about timing. To maximize your profit, you’ll want to carefully monitor the real estate market and determine when the best time is to sell.

Passive investing

Buy-and-hold real estate investing offers a great passive investment strategy because as long as the property is occupied, you’ll be able to collect income with minimal effort on your part. However, note that it's not a completely hands-off investment strategy. You’ll still need to find tenants, maintain the property and deal with any other issues as they arise. If you prefer, you can enlist the help of a property management company to handle the day-to-day tasks of being a landlord.

Cons

Despite its advantages, buy-and-hold investing isn’t for everyone. Some investors may not have the patience or financial flexibility to deal with long-term commitments or unexpected challenges. Additionally, real estate markets can be unpredictable, and holding onto a property for too long without proper strategy can limit your returns.

Here are some of the disadvantages of the buy-and-hold real estate investment strategy.

Requires thorough research

Finding the right property to invest in can be challenging, especially for new investors. Property values, neighborhood trends, and local regulations all play a role in how successful an investment might be.

Here are some tips to help you identify strong investment opportunities:

  • Research local market trends. Look at neighborhood appreciation rates and rental demand.
  • Review property history. Use public records or real estate tools to check for past renovations or issues.
  • Consult local experts. Real estate agents, appraisers, or property managers can provide valuable insight.
  • Analyze cash flow potential. Make sure the expected rent covers your mortgage, taxes, insurance, and maintenance costs.
  • Visit properties in person. Photos don’t always tell the full story – seeing the property firsthand can help you spot red flags.

Presents risks

Like any investment, buy-and-hold real estate comes with inherent risks. Investors may face issues such as prolonged vacancies, unexpected repair costs, income tax obligations, changes in insurance coverage, and tenant disputes. These challenges can disrupt cash flow and reduce returns if not properly managed.

To help mitigate these risks:

  • Build an emergency fund for unexpected repairs or vacancies.
  • Screen tenants thoroughly to reduce the likelihood of missed payments or property damage.
  • Keep up with maintenance to preserve property value and avoid larger repair bills.
  • Understand tax implications and consult a tax professional to take advantage of possible deductions.
  • Review insurance coverage regularly to ensure you’re adequately protected.

More stringent requirements

Because they’re riskier for lenders, investment properties have more stringent qualifications. Most fixed-rate mortgages rates that you see will be based on a prime borrower profile of a 740 credit score and a 40% down payment, but those rates will still be higher than what you’d pay for a mortgage on a primary residence. It’s also recommended that you put in a minimum down payment of 15% or 20% on a conforming loan if you want to avoid additional fees. Your interest rate may also be higher on multiple investment properties than on your primary residence.

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How to buy and hold real estate investments

If you’re considering a buy-and-hold real estate investment, it can be helpful to know exactly what you can expect from the process. Here’s how it all works.

1. Browse and compare investment properties

Finding the right property is one of the most important steps in a buy-and-hold strategy. Here are some tips to help you find the best investment opportunities:

  • Research local markets. Look for areas with a high demand for rental properties. Focus on neighborhoods with stable or growing populations, low crime rates, and good amenities like schools and transportation. Local market trends can greatly influence the potential for rental income and property appreciation.

  • Analyze rental yields. Ensure that the property's rental income will cover your expenses. Calculate the potential rental yield by dividing annual rental income by the property’s purchase price. This will help you assess whether the property will generate positive cash flow over time.

  • Visit multiple properties. Don’t settle for properties that look good on paper. Always visit properties in person to get a feel for the neighborhood, the condition of the property, and the level of maintenance required. This can help you avoid hidden issues that might not show up in photos.

  • Check comparable property values. Look at the sale prices of similar properties in the area (comps) to ensure you’re not overpaying. Use online tools like Zillow or Redfin to get an idea of what similar homes are renting or selling for in the same neighborhood.

  • Evaluate future growth potential. Consider the long-term potential of the property. Are there upcoming developments or city plans that could increase demand for rental properties in the area? Proximity to future public transportation hubs, shopping centers, or other amenities can be a good indicator of future growth.

  • Consider property condition. Buying a property in need of major repairs can be costly, but it might offer a higher return if you can renovate and increase its value. Make sure you factor renovation costs into your calculations and only take on repairs you are confident you can manage.

2. Purchase or finance the property

The process of financing buy-and-hold real estate is similar to financing a primary residence. Here’s how it works:

  • Go through underwriting. Once you land on a property to purchase and have an offer accepted, an underwriter will look at your assets through underwriting. Your lender will want proof of income (tax returns and pay stubs), credit documentation, proof of assets and liabilities (retirement and banking account statements, titles of transfer and gift funds).
  • Get a home inspection. While you’re going through underwriting, it’s also a good idea to get a home inspection. This will ensure you’re fully aware of the property’s condition before you purchase it.
  • Get an appraisal. Your lender will order an appraisal, which identifies the property's fair market value to ensure they’re not lending you more than the property is worth.
  • Review your closing disclosure. After that process, you'll get a Closing Disclosure, which summarizes what you should pay at closing. Make sure it looks similar to your Loan Estimate, which you should’ve received from your lender after you submitted your loan application.
  • Close on the property. Finally, you’ll need to do a final walkthrough and attend your property’s closing. Bring your ID, funds for closing and a copy of the Closing Disclosure.

3. Rent out and manage the property

After you’ve closed on your rental property, you’ll need to decide if you’re going to manage and maintain it yourself or if you’d prefer to enlist the help of a property management company. Here are some of the steps you’ll need to take to get a tenant into your property:

  • Market your property
  • Screen potential tenants, including running background checks and making sure they can afford rent
  • Formulate a lease agreement
  • Keep track of all state and local laws
  • Get landlord insurance

Maintaining the property

You'll also need to maintain the property, which means doing the same type of things that you would do with your own property, such as:

  • Updating smoke and carbon monoxide detectors
  • Putting in new air filters
  • Maintaining the HVAC and other major systems
  • Managing structural issues such as foundation problems
  • Getting ahead of any issues before they become a problem and throughout the time you rent out your property to tenants can make it a positive experience for them and you.

Managing finances

Buy-and-hold real estate investing also includes managing the financial aspects of the business, including:

  • Collecting rent and security deposits
  • Keeping track of mortgage, taxes, insurance, and utilities

Making sure you're timely on the finances can help you keep your business in tip-top shape. Your tenants will also thank you for keeping things streamlined.

4. Monitor housing market trends

When you’re thinking of selling your buy-and-hold property, knowing the current and potential future housing market trends can help you figure out the best time to sell. Keep tabs on the broader and local housing markets to decide how you might make your next move, which could mean capitalizing on a seller's market.

Note that housing market trends might not be the same across the country. Pay attention to how long homes are sitting on the market, what they’re selling for and if it’s above or below the asking price.

5. Know when to sell the property

The final step in buying and holding a real estate investment property involves knowing when it's a good time to sell the property. That could be when comparable properties in the area are starting to depreciate, though a large part of the buy-and-hold strategy involves weathering fluctuations in the housing market. Ultimately, you may want to consider selling if the property no longer meets your investment and financial goals. Continually evaluate whether your buy-and-hold investment still fits your abilities, financial goals and willingness to handle being a landlord.

Consider Tax Implications

Remember to consider taxes before you sell. When you sell a property, you'll pay capital gains, and the time you own the property determines the type of capital gains you pay. You'll pay short-term capital gains (the ordinary tax rate) if you own the property for less than one year, though this typically won’t apply in a buy-and-hold scenario. You’ll get preferential tax rates on long-term capital gains, which can be a big benefit for buy-and-hold real estate investors.

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The bottom line: Decide when buying and holding will work for you

Buying and holding real estate is a long-term investment strategy. The process involves looking at investment properties, buying a property, renting it out, managing it, monitoring market trends, and deciding when to sell it. There are pros and cons to buy-and-hold investing, so consider both sides of the coin when to choose this real estate investment strategy.

Are you ready to get started with buy-and-hold real estate investing? If so, start a mortgage application with Rocket Mortgage® today.

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Christian Byers

Christian Byers is a freelance writer and editor with experience covering diverse topics. He has a B.S. in Journalism and a B.A. in Communications from Eastern Michigan University. His experience as a writer and editor includes publications such as The Eastern Echo, Rocket Central, and Woodward Sports Network.