Our Favorite Holding Period is Forever

Investing With the Long Term In Mind

“Our favorite holding period is forever” 

• Warren Buffett 
   

You may get rich selling assets at a profit, but attaining true generational wealth is by accumulating assets and never selling. The principle holds true for any true asset, be it stocks, businesses or real estate. (I previously covered this principle here). 

I was reminded of this while attending a real estate conference that had Ken McElroy as the keynote speaker. Ken is an entrepreneur, author, and speaker, with a vast real estate empire with over $1.5 billion of assets under management, and is best known for his partnership with Robert Kiyosaki, the author of “Rich Dad Poor Dad.” In his talk about his “Infinite Investing” principles, he emphasizes the concept of buying properties for the long term and never selling them.

What is Cash Flow Real Estate? 

Cash flow real estate, also known as buy-and-hold real estate, involves purchasing properties with the primary goal of generating rental income. Unlike the speculative nature of house flipping, where you hope to make a one-time profit when selling, cash flow real estate offers a steady stream of income over time. This strategy involves a long-term commitment to property ownership, allowing investors to build wealth gradually and consistently. 

Benefits of Cash Flow Real Estate 

1. Steady Income Stream: The most obvious advantage of cash flow real estate is the regular income it provides. Rental income can help cover property expenses and provide a reliable source of passive income, making it an excellent way to achieve financial stability. 

2. Wealth Building: Over time, rental properties can appreciate in value. This dual benefit of rental income and property appreciation allows investors to build wealth steadily and incrementally. 

3. Tax Benefits: Real estate investors enjoy several tax advantages, including deductions for mortgage interest, property taxes, maintenance expenses, and depreciation. These deductions can significantly reduce your tax liability. 

4. Diversification: Real estate offers diversification in an investment portfolio. It can act as a hedge against stock market volatility, providing stability during economic downturns. 

5. Control: As a property owner, you have control over your investment. You can make decisions regarding property management, rental rates, and improvements, giving you a sense of autonomy in growing your investment. 

6. Inflation Hedge: Real estate is often considered a natural hedge against inflation. As the cost of living rises, so do rental prices and thus rental income, which can help preserve its purchasing power.

Accelerating Wealth using the Value Add and the BRRRR Strategy 

Now the first question most ask is: It’s nice to keep accumulating properties, but what if I run out of money to invest to buy more assets? This is where the principles of the BRRRR strategy comes into play (Buy, Rehab, Rent, Refinance, Repeat).   

Ken’s strategy is to renovate the properties, increase rents and thus increase their valuation, which is what is referred to when you hear the term ‘Value Add.’ He is then able to refinance the properties at the higher valuation and return all or most of the original invested principal to his investors, while they still own their shares of the property and collect income from cash flow. 

You can do the same, whether it is in your own properties or by investing with someone who uses this principle. 

Weathering Economic Downturns 

Buying and investing in properties that cash flow provide a margin of safety and decrease your risk for economic downturns. 

By keeping his eye on the long term, Ken McElroy not only survived, but thrived through the global financial crisis of 2008. While valuations of properties went down (thus making it not a good time to sell), his properties continued to cash flow. He simply rode through the storm, continued to make money, and his property values eventually recovered to and exceed pre recession levels.   

Conclusion 

You may make a quick buck here and there buying, selling and trading assets, but the slow and steady path to true generational wealth is through buying for the long term and accumulating cash flowing assets that you hold forever.  Invest in properties and assets that cash flow, and have the potential of increasing their cash flow over time and through recessions.  It is the most steady and least risky path towards true wealth and securing your financial future.

If you want to talk about how you can build and preserve wealth and generate passive income like the ultra-rich, set up a time to talk with me