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Monday, March 07, 2011

This article describes the first strategy of nine property investment strategies.

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Strategy 1 – Buy and hold


‘Buy and hold’ must certainly be the number one strategy we come across and for good reason. The main disadvantage of property over other forms of investment is transaction cost. It costs you approximately $20,000 to get in and $20,000 to get out, compared with, for example, shares, where it costs you as little as $19 to get in and $19 to get out (as long as the market hasn’t crashed in the meantime).

To minimize transaction costs most investors choose to buy and hold and bank on the average capital growth of around 10% per annum (reference needed). This way the transaction costs are averaged out over the years that the property is held and become far less significant. It is safe to say that a ‘buy and hold’ strategy should be implemented for at least 7–10 years and the longer the better.

Another major advantage of the ‘buy and hold’ strategy is that it adds to the ‘sleep-at-night’ factor. You don’t need to be constantly monitoring the market, every latest deal and every market movement. You simply buy a good property in a good location with good rental returns and high tenancy rates and then you forget all about it. You set yourself a goal of say, one property every 6–12 months and then once you have this property you just forget about it. You can continue on with your day job knowing that the property is on ‘remote control’. 

“The ‘buy and hold’ strategy allows you to withdraw equity from each property as it grows and use this towards your next purchase. This saves the significant transaction costs of constant buying and selling.”
 The main disadvantage with the ‘buy and hold’ strategy is liquidity. Due to the longer timeframe required for this strategy, if you need quick cash for emergencies it can be sometimes difficult to access. That is where having the right strategy in place won’t over-expose your financial well-being. At Wholistic Financial Solutions, we’ll teach you how to set up your portfolio without being over-exposed.
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