Welcome to BuyAssociation.co.uk

Investment: Buy and hold real estate - Colin Murphy, Torcana

The Real Estate Buy And Hold Strategy Is Back

During the boom times, I used to attend 15-20 property exhibitions per year. I can´t remember anybody at these shows advocating a buy and hold strategy. It was all about buying offplan and then selling for a big profit shortly after completion. Many a taxi driver, publican and dinner party host could be heard advocating a "buy now before prices go even higher" approach.

In hindsight, that turned out to be a pretty risky way to try and make some money. It was also miles away from the traditional methods advocated by old hands.

Somewhat ironically, it is easier to make money purchasing real estate now even though many might instinctually prefer to wait until the opportunity has passed.

While I´m convinced that making a profit by buying real estate is both easier and safer than it was 5 years ago, it doesn´t happen quickly and it certainly doesn´t involve borrowing lots of money.

There´s no great secret here, the strategy couldn´t be simpler.

Here goes: buy a highly discounted property with cash (no interest rate risk), in an established location, earn a nice income, treat your tenants well, and hold onto it for as long as you can. Consider selling only when the statistics and your gut tell you the market is showing signs of another property bubble.

I´ll be the first to admit that this isn´t a particularly exciting plan, but you know what? It works. Very well. Just look at the table below. All I´ve done is illustrate the net income that can be earned from any half decent three bed condo in Florida.

It's a numbers game

Apart from earning 150% of your purchase price, you still own a property outright with no mortgage that you bought for 35 cents on the dollar.

Before any of you young guns reading this dismiss such as strategy as unsuitable, consider what the great American economist Paul Samuelson said, "investing should be more like watching paint dry or watching grass grow. If you want excitement, take $8,000 and go to Las Vegas".

Let the numbers tell you when to buy and let the numbers tell you when to sell. I know a large bulk of our readers do this instinctually. A high rental yield with no gimmicks is one of the surest signs that a property is well priced.

The opposite is also true - a low rental yield probably means it´s overpriced. If it´s a combination of low rental yields and high capital appreciation - watch out, because you´re probably in the middle of a property bubble.

How do we know when the supply / demand balance is in our favour?
Taking Orlando as an example (because that´s where my company is most active), I think it is reasonable to assume that a good time to buy is when a supply glut has moved towards balance and the local house prices don´t reflect that yet.

Guess what? It´s happening now. According official figures from the Orlando Regional Realtors Association, the supply of available properties is now at a 5 year low. Unlike 2007, 2008 and 2009, average sales prices actually went up in 2010 across Orlando.

A perfect storm (but brightening)

I´ve never seen conditions more perfect for buying real estate in the US. In the areas we sell - prices are reduced by 65-70% compared to what they were 4 years ago - way below construction cost. Supply was extremely high, but it is reducing fast.

Recent figures from the Census Bureau and The Economist (see graph above) confirm that homeownership rates have decreased from 70% in 2004 to 66.5% today - that means more renters. In fact, there are more renters now there has been for almost 6 years. When the number of renters is increasing faster than the supply of properties, rents should increase.

According to a Marcus & Millichap report (they´re one of the largest brokerages in the USA), exactly that has happened. The shift from homeownership to leasing should boost the local market's average apartment asking rent to $864 by year's end, a 2.2 percent increase. In the best middle class neighbourhoods it will increase by considerably more.

Colin Murphy

Colin Murphy is Director of Torcana.com, a Dublin & Florida based investment specialist which promotes a variety of real estate investments in the USA (primarily Florida) and solar energy investments in Italy, Germany and the United Kingdom.

More pages

Page 1: The Real Estate Buy And Hold Strategy Is Back
Page 2: A perfect storm (but brightening)

Reserve your overseas currency online - for a high street beating rate!

The best villa holidays from James Villas with our hand-picked villas and all the support you need in resort, we're the number one choice

Predicted profits of 92% on your investment in Canada Invest in pre-development land for only £20,000

Find your perfect villa rental with Villas4You over 500 villas across 20 destinations