Real estate can be an excellent buy and hold investment.  Provided rent covers a substantial portion of the mortgage payments and operating costs, investors can simply hold a property and wait for leveraged appreciation to make them wealthy.  While this seems like a deceptively easy strategy, buy and hold investors need to have a good understanding of finance and the market to maximize their investment.

Buy and hold investors make money on the buy.  Since these investors are much less sensitive to short term market movements, these investors should try to locate up and coming neighborhoods.  Neighborhoods with significant construction represent great opportunities to get in on the ground floor and wait.  These investors should absolutely avoid the flavor of the month or locations that have experienced unexplainable appreciation.

Investors with a little more experience should consider major markets in a down cycle.  Many major market experienced 40%+ declines in real estate valuations, with very little change in the economic fundamentals.  Areas like Las Vegas and Florida in 2007, 2008 and 2009 could be prime targets for smart buy and hold investors.  Investors that understand where the fundamental value in these areas is could purchase new homes at deep discounts with a great deal of seller concessions.  These opportunities may help investors minimize the upfront costs and provide them with properties that pay for themselves.  Again, buy and hold investors in major markets need an in-depth understanding on the historical market rent trends, economic/job growth trends and real estate pricing trends. 

Another area that traps buy and hold investors is the holding period.  Typically, these investors are overly concerned with selling at the height of the market.  This presents two problems.  First, many times investors wait too long and miss great buying and selling opportunities.  Second, investors do not remember to maximize their interest and tax deductions. 

Sellers should not try to time the market.  Buy and hold investors should look to maximize the value of their property and then locate their next investment.  As the market trend higher, sellers should begin to look for great buying opportunities.  When an opportunity is located, the investor should considering selling or refinancing their original buy and hold investment.  Buy and hold investors should be very familiar with 1031 Exchanges.  Remember, buy and hold investors can cash out of their investment with a refinance or with a sell.  Refinancing allows investors to maintain control of the property, increases their tax deductions and frees up cash to make additional investments.

Buy and hold investing should not be a passive pursuit of wealth.  Actively managing a buy and hold portfolio yields more investment opportunities and the potential for much higher returns on investments.