Did Grandpa tell you about the real estate investment strategy of ‘buy and hold’? Mine did too.
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about probably the most well-known long-term investment strategy, buy and hold. Here’s the problem. You can get 10 guys in the room, you’re going to have 11 definitions of what that actually means. Here’s what a lot of them mean – and this comes from Grandpa. You buy a house, you buy a duplex, you buy another one, you buy a third one – however many you can afford – and you end up owning them for life. And then you get them free and clear, and that’s your income. Now, what I say is this: buy and hold, we’re good to go on that one, but don’t hold them past the point where changing what you’re doing in your purposeful plan would be very beneficial to you. Here’s an example, what if you bought a couple of duplexes, and the whole plan was for you to pay those off as fast as you can? Well, what if those duplexes were $250,000, and they never went up, but in five or ten years, you paid them off, and you had another strategy that allowed you to sell those without paying dime one in taxes? So far, so good, right? Well, you’ve got a half a million dollars in tax-free money. What do you think you can do with that – and it’s only five or ten years down the road? Well, if you were at 35 when you did this, and you’re 45 and you have a half a million dollars, you still only have two free and clear duplexes. But now you take that $500,000, and use prudent leverage – let’s say 25 percent. Now you’re going to go out and buy, give or take, a couple million dollars, and you pay that off. Well, when you really look at it, what you’ve done is taken two duplexes, which if you held them and paid them off, means that over time you might have bought a third one, maybe even a fourth and fifth one. But because you paid them off in ten years, and then traded them, or sold them for tax-free cash, you’re now going to end up owning eight or nine, maybe even ten of them, completely free and clear. And at retirement, you just increased your retirement income 50 to 150, sometimes 200 percent, by changing your definition of buy and hold by merely adding the factor of flexibility to your purposeful plan. This is Jeff Brown, the BawldGuy. Thanks for joining me today. We’ll see you next time.