If you've heard the term buy-and-hold, but you've never really seen it defined, it's not hard to explain.
Buy-and-hold means that instead of buying an investment in order to quickly flip it for more money, you're holding onto it for a more significant period of time.
The buy-and-hold strategy has been championed by none other than Warren Buffett (the Oracle of Omaha) and other long-term investors, and it's a time-tested method for capital gains that may carry less risk and more reward in the form of delayed profit-taking.
Buy-and-hold in Real Estate
Buy-and-hold means something specific in real estate, too.
One of the key things to know about long-term real estate holdings is that buy-and-hold allows the holder to use depreciation in annual filings, and also deduct other costs of owning property – a powerful one-two punch when it comes to knocking down your tax bills (if you’ll forgive the pugilistic analogy).
To take a step back, a lot of your tax burden is determined by your taxable income minus all of the deductions you can find to lower the final amount of tax that you’re paying.
So in that context, buy-and-hold real estate offers the opportunity to take these large depreciation gains, calculating value changes in real estate over time according to IRS calculations. To really look at how effective this is, you have to look at some amortization tables and related calculations that show how your property is valued in complex ways. We can help with this if you have questions about how it works.
Cost Segregation Studies
Here's another great tip that we often talk to customers about at The Real Estate CPA. We help to administrate these types of financial research, because they are so valuable to our client’s bottom line.
Along with claiming all of this depreciation and cost of maintenance such as mowing, painting and structural work, being able to conduct cost segregation studies makes these deductions more clear-cut.
At The Real Estate CPA, we do a lot of this kind of work for clients to help them to maximize their profit and make sure their tax burden is fair. That’s something that every real estate investor needs, so if you do not have a good CPA looking at your filings, why not start now? Give us a call and we’ll walk you through everything that relates to keeping more of your real estate investment gains in your own pocket.