Why Long-Term Buy and Hold Rental Properties Are a Smart Investment in Birmingham, AL

There are multiple strategies to make money in real estate investing. I'm sure you've seen the glamorized TV shows of house flipping, or heard people talk about Airbnb arbitrage. In my experience though, purchasing a property, placing a long-term tenant, and holding the property for 5+ years is the best way to build wealth while reducing risk in real estate.

Real estate investing is a great way to build wealth and generate passive income, and one of the most popular strategies among investors is buying long-term buy and hold rental properties. The benefits are outstanding, especially if you are open to delaying gratification and wanting to build real wealth, not just have cash in the bank. If you're considering investing in real estate in Birmingham, AL, buying long-term buy and hold rental properties could be a smart move. Here are some benefits of this strategy:

Steady cash flow: One of the most significant benefits of buying long-term buy and hold rental properties is the steady cash flow they can provide. By renting out your property, you can generate a steady stream of income that can help you cover your mortgage payments, property taxes, and other expenses. You won't get rich off of 1 house, but realistically, you can expect anywhere from $200-$400 a month of cash flow (all income-all expenses = monthly cash flow). With 1 property, it's nothing to get excited about. But once you start compounding it, say you build a portfolio of 10 properties at $300/month, now you're talking $3,000 a month. Still nothing to quit your job over, but ramp it up to 50 properties. 50 homes x $300 = $15,000 per month. Over $150,000 a year from minimal work. It's not completely passive since you do have to tend the portfolio, but the team around you will be doing the heavy lifting, and simply have to ensure things continue to perform properly.

Appreciation potential: In addition to generating cash flow, rental properties can also appreciate over time, meaning they can increase in value. By holding onto your property long-term, you can benefit from appreciation and potentially sell the property for a profit down the road. And this is not with 100% certainty since there is always a possibility of a real estate correction, but that being said, history shows us that real estate in America appreciates over time. If you hold the property long enough, you will see a return on your investment.

Tax benefits: Rental properties offer several tax advantages that can help investors save money. For example, you can deduct your mortgage interest, property taxes, and other expenses from your rental income, which can reduce your tax liability. Again with one property, it's not much, but once you start talking about a portfolio of properties, the write-offs really start to add up, and they can greatly decrease your tax liability. There are also more sophisticated approaches to tax savings, like the 1031 exchanges, utilizing cost segregation, etc., but those will be discussed in other blog posts.

Diversification: Investing in long-term buy and hold rental properties can also help diversify your investment portfolio. Real estate has a low correlation to other asset classes, meaning that it can help reduce the overall risk of your portfolio. When you're invested solely in the stock market, you're vulnerable to changes that are mostly outside of your control. Incorporating real estate into your portfolio is a great way to hedge against a downturn since it tends to be a more steady asset class. The ups aren't as high as some growth stocks, but neither is the potential loss. Steady growth with minimal risk provides a good counterbalance to your investment portfolio.

Control over your investment: Unlike other investments, such as stocks or mutual funds, owning rental properties gives you more control over your investment. You can choose the location, property type, and management strategy that works best for you. It's also a physical building, you can go walk it, drive by it, improve it by investing in better materials, etc. Ideally, you have a Property Management company controlling the day-to-day, but ultimately, having the ability to impact the value of your investment by your choices is something that no other asset class provides. If you want to force appreciation into your Apple stock, there's not much you can do. If you want to force appreciation into your rental property, you can update the kitchen or paint the interior, renovate the bathrooms, etc. This unique aspect of real estate provides peace of mind knowing that you have a direct impact on the value of the asset

Birmingham's strong rental market: Birmingham is truly a hidden gem. Birmingham has a strong rental market, with a relatively low vacancy rate and high demand for rental properties. With a growing population and a thriving economy, Birmingham offers a stable and potentially lucrative market for long-term buy and hold rental properties. With Atlanta 3 hours to the east, and Nashville 3 hours to the north, Birmingham is primed for growth. Both of those cities have experienced construction booms, which have made the price of living too expensive for some, which drives people away and into neighboring cities, like Birmingham. Also, with more population comes more traffic. There will always be people that are looking for a simpler city to live in. Which is one reason why I believe Birmingham is set for expansion. The mayor is also willing to do what it takes to attract businesses. The city has timeless character. The hip restaurants, the trendy shops, the affordable prices, the increase of businesses moving their headquarters there, the proximity to other cities, are just a few reasons why Birmingham is a great place to invest.

In summary, buying long-term buy and hold rental properties in Birmingham, AL offers several benefits, including steady cash flow, appreciation potential, tax advantages, diversification, and control over your investment. With a strong rental market, investing in rental properties in Birmingham can be a smart move for investors looking to build wealth and generate passive income. At Freedom Ventures PM, we are a full service brokerage, whether we assist with purchasing great investment properties, managing the properties, as well as assisting with any rehab that properties may need. If you're interested in investing in Birmingham AL, reach out to us on the contact page, we'd be glad to help you build long term wealth through rental properties in Birmingham AL.