Updated: Jan 9
A hold period is the amount of time you hold on to a property after purchasing it, and is usually measured in years. The question regarding the ideal hold period pops up from time to time, especially with those who are new to multifamily investments. The standard answer is, “It depends.”
Here’s why: there are many factors that go into determining how long to hold on to a property. Holding period depends on the investment strategy that was determined at the beginning of the deal. The investment hold depends on two main factors: the investment type and the investor’s preference.
Hold Period Strategy Depends on the Investment Type
Fix and Flip
There are basically two different types of strategy: “buy-and-hold,” and “fix and flip.” A fix and flip investor holds the property for a few months, and sells it right after the improvements to the property are done.
The hold period will be different depending on whether the investment is a buy and hold or fix and flip. In that scenario, the investors buy an unstabilized property with the intention of fixing the problems quickly and selling it. The asset is unstabilized due to a high vacancy rate or disrepair. The intention is to stabilize it and sell it, usually in a time period of up to 18 months.
The pro to that approach is that it is a short holding period. The cons are that financing can be a challenge, there would be higher interest rates, and the property would be highly impacted by market conditions, particularly if the property must be sold because the loan is due.
Buy and Hold
If the buy-and-hold option is used, it can be a multifamily property that is ether a turnkey asset or one that is a value add. If it’s a turnkey investment, then nothing needs to be done in order to hold and then ultimately sell the property. If it’s a value add property, different construction or renovations must be undertaken in order to maximize rents and maximize the property’s value.
Buy-and-hold can be one of three hold periods. The short period, which is similar to a flip, is one that might be held for a period of 1-2 years. An Average hold period is a property that is held from 3-7 years, and a long hold period is 10 years or more.
If you opt for the buy-and-hold option, make sure that you have a loan that matures after the hold period is over. Suppose you run into circumstances that require you to sell your property in 7 years, but market conditions are such that you should really hold onto the property for a few more years. If you have a 10-year, fixed-rate loan, you’re in luck, and in business, because holding the property a few extra years is in the best interest of the overall situation.
Hold Period Strategy Depends on the Investor Preference