When you purchase a company’s stock certificates, you’re looking for appreciation in the stock value, and perhaps dividend income, if the company pays it. With bonds, you’re looking for income yield on the interest rate paid by the bonds. With real estate investments, there are even more ways in which to realize a superior return on investment.
Here’s an overview of how real estate investments can increase in value and provide good cash flow.
CASH FLOW FROM RENTAL INCOME
The right and well managed rental property can provide a steady income stream in the form of rent. Similar to a stock that pays dividends. Rental property returns also typically exceed dividend yields.
Even though prices of real estate fall from time to time and the market becomes slower, people who own residential investment property, in most cases, lease it for a longer period of time, without experiencing corresponding decreases in rent.
INCREASES IN VALUE DUE TO APPRECIATION
Even though we can’t predict what real estate trends will be, historically, real estate has shown to be a great source of profit due to the overall increase in investment property value over time.
ADDING VALUE TO YOUR INVESTMENT PROPERTY
In case you choose to liquidate your property, you should consider improving it first. That way you will probably earn more profit. You can increase its value with upgrades to the appearance and functionality. For example, installing energy efficient appliances and windows, adding a bathroom, and remodelling a room can all lead to value increase. As trends and styles change, keeping the property interesting to renters can help you retain its value.
WHILE RENTING OUT YOUR PROPERTY, INFLATION IS YOUR FRIEND
While your fixed mortgage payment will remain constant, inflation will affect home construction costs as well as rents with driving them up. Population growth also creates housing demand and drives up rental prices when supply cannot keep pace.
MAKING USE OF EQUITY
The equity in your investment property will increase as you pay down your mortgage. Though equity is usually determined when you sell a property, some real estate investors take out equity loans when interest rates and loan terms are favorable and use those funds for other real estate investment projects.
FIND THE RIGHT PROPERTY
The more expensive the home, the higher your running costs will be. Some experts recommend starting with a $ 150,000 to $ 200,000 house in a developing neighborhood. In addition, experts advise you to never buy the most beautiful house for sale in the block – and the same for the worst house in the block.
Most important, be realistic in your expectations. As with any investment, rental property isn’t going to produce a large monthly paycheck right away, and picking the wrong property could be a catastrophic mistake. Still, rental properties can be a lucrative way to invest in real estate. For your first rental property, consider working with an experienced agent or partner.
Source: thebalancesmallbusiness, millionacres