Buy and Hold "the best strategy for building long term wealth"

[Josh Young]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $480,000
Cash invested: $24,000

Purchased using a 5% down conventional loan. I bought this home and lived in it with my family for a few years before moving and turning it into a rental. The cash flow is okay, it's not great, but the principal pay down on this loan is over $10k per year, and this is a great location, so the property value and rental rate will continue to appreciate over time.

What made you interested in investing in this type of deal?

I have used this strategy several times, I buy as a primary residence and keep it as a rental when I buy another house and move a few years later. This strategy only requires 5% down, so I save my cash for reserves and other investments and it gets me the lowest available interest rate. Living in the home with my family also ensures that it's in a great area and allows me to make small improvements while living there.

How did you find this deal and how did you negotiate it?

I found this deal on the MLS and paid market value, I even increased my offer to get a concession from the seller to reduce my cash out of pocket and buy my interest rate down. I have found that over time the location and the terms are the most important things, the price is also important, but the location and terms are more important.

How did you finance this deal?

5% down conventional loan with seller concessions to cover my closing costs and buy my rate down.

How did you add value to the deal?

I made a few small improvements to the landscaping, I bought a few new appliances, updated a few fixtures, added blinds to the windows, minor drywall repair/paint, and marketed the property as a 4th bedroom that would make great home office/den instead of a 3 bedroom plus office/den.

What was the outcome?

This is my 5th house in Gilbert and I plan to continue with this strategy until I get 10 houses.

Lessons learned? Challenges?

About a year or two ago I pivoted and started flipping and finding alternative strategies, but I have realized those cannot replace this strategy, they can be in addition to it, but I need to continue buying, moving, and keeping as a rental every couple of years because this really is the best strategy for building long term wealth.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I am an agent and property manager, so I represent myself and manage my own properties. I also love helping others, so please reach out if you have questions or if you want help.

[Drago Stanimirovic]

Hey Josh,

I really like your approach to buy-and-hold investing by purchasing primary residences and turning them into rentals over time. Leveraging the 5% down conventional loan is a brilliant way to minimize upfront costs while still gaining a foothold in appreciating markets like Gilbert, AZ. Your focus on location and terms over price resonates, these are often the most important factors for long-term success, and it’s clear you’ve mastered that.

I also appreciate how you made small improvements while living in the properties to increase their appeal as rentals. Those little upgrades can make a big difference in attracting quality tenants. Your strategy of re-marketing a 3-bedroom plus office as a 4-bedroom home office is a smart way to boost rental demand and rental income without major renovations.

One insight I’d add is the potential benefit of exploring cost segregation studies once you build a larger portfolio. It could help accelerate depreciation deductions, especially with your mix of single-family homes and duplexes. This could significantly boost your cash flow by reducing your taxable income in the early years of holding each property.

Also, as you approach your goal of 10 properties, consider looking into portfolio loans. As your real estate empire grows, consolidating loans into one could offer better terms and streamline management.

Overall, your method of buying, living, and then converting properties into rentals is a strong, scalable strategy for building wealth. 

Keep up the great work, and feel free to reach out if you'd like to discuss financing options or new insights!

BR,

Drago