Should I Invest in Real Estate?

Compared to other investments, real estate can provide much better yields.

In the meantime, bonds yield as composite, proffered with around 5% returns. One with more return was actually riskier, while safer bonds returned lower yield.

Meanwhile, in the same time frame, real estate investments were much more attractive in term of return due to multiple income stream from real estate buying. Lets discuss few income streams that are proffered by real estate investment.

Rental yield: direct rental income can be first thing that can be calculated as either net or gross. Though most of the experienced investors prefer to calculate net rental yield. Which takes the expenses, taxes and other costs into account and divides by the property value/cost. This may turn into negative cash flow, as usual it doesn’t accounts the mortgage payment into consideration.  Reason why most of the investors like to look at cash-on-cash rental yields.

Appreciation:: Rent out properties with time normally appreciate value with inflation. Increased value would turn into sale and reinvestment in higher value, or provide an equity line of credit to use for other investments.

Inflation is Rent-Friendly: Rents are bound to increase with the inflation, while mortgage payment tends to remain stable as previous decided terms. In turn it increases the cash flow, with more rent income without any increasing expense of holding a property. When inflation is up, it also means that there are more renters, though affordability to home can be negatively impacted by inflation. Simple demand and supply rule, where renters increase, so rents escalate.

Leverage:: use leverage while buying a  good rental yields, helps you in greater returns. Investing some money to acquire three properties with down payment, instead of one full payment for one, it can greatly help increase returns. But you have remember things all the leverages involves risk, so as successful investor much understand the risk involved in leveraging in real estate.

Paying down the loan:: - Amortization, or paying down the loan, frees up more investment resources to increase leverage. Some investors use increased equity in one property to free up funds to invest in others.

Property improvement for equity:: - Many investors intentionally purchase properties at a value because they lack some feature or could use some improvements in condition or amenities. They have calculated that the value of the improvements will exceed the cost, resulting in an immediate increase in equity. Get more information on ARV, or After Repair Value.