When you buy a share, you basically expect the share’s price to rise and possibly receive dividends. When you buy bonds, you expect interest yield on the rate of interest offered by the bond. However, the RoI on real estate investments is manifold. You can expect an increase in your cash flow along with an appreciation of your invested capital. Here is a quick look at the different kinds of Real Estate returns.
1. Rental Income
When you invest in real estate, commercial or residential, you have the choice of leasing out the property for a monthly rent. This can provide a steady source of income. This is applicable to all investors who are not purchasing the property for living there. This income can be really handy for those investors who purchase the property by availing a loan. The rental income usually helps them take care of the loan installments and as time goes the loan is repaid without causing a hole in their pockets.
Although the real estate market might experience periods of slump, it usually does not affect the rental income since most property owners lease their properties for a few years minimum. Also, investing in a city or an area that is commercially buzzing ensures that you always have tenants looking for a rental property. This gives you a better control over risks to your cash flow.
2. Capital Appreciation
Real Estate prices, around the world, are known to rise. There are certain periods of time when the rise is slow and times when the rise is phenomenally high. However, you can expect an overall increase in the value of your property over time. To ensure maximum appreciation of the value of your property you must ensure that you analyze the area where you are buying the property well. Speak to some property experts to understand their estimate of expected growth.
You can increase the value of your investment
Talking about capital appreciation, it is important to note that the cash flow provided by your investment in terms of rental income can be used to increase the value of your property. This can ensure that you get a higher sale price whenever you decide to sell it and turn your property into a high return real estate investment.
You can change the appearance of the property or enhance its functionality. If you observe a certain change in trend in the market, then you can upgrade it to keep renters and prospective buyers interested. Some examples of such upgrades are well-appointed bathrooms, insulated walls (if you live in a cold area), centralized air-conditioning (if you live in a hot area), large windows (to allow maximum daylight), etc.
3. Inflation causes you more ‘good than harm’!
Typically, we all dread inflation. We invest to beat inflation and financially secure our future. When you buy a property on a housing loan, your installments are fixed by the financing institution. As years go by, inflation leads to an increase in construction costs and rents. With a growth in population, the demand for housing increases which also has a direct impact on property prices and rents. All in all, inflation benefits you in more ways
4. You can find a ‘Distress Seller’ and strike a jackpot
We are not recommending that you buy a property only when you find one at throwaway prices, but the fact is that real estate is a market where you have the chance of finding a good property at cheap rates. Unlike other investment options, where the price is more-or-less fixed, real estate prices can vary with every seller. Do your homework well and research the market before you buy a property. Finding a good deal can almost instantly increase your net worth.
As discussed above, real estate investments can offer different types of returns depending on how you handle it. It is an active investment option, where you can influence the return on our investment. The best RoI real estate investment is one where:
- You buy a property in a fast developing city/area
- Research the market well to find a good deal
- Lease the property at market rates
- Use the rental income to either repay the loan installment or upgrade the property
Following these four points can ensure that the real estate returns on your investment are way better than other investment options.
When you invest in real estate, you are buying a property that will almost certainly increase in value and provide regular income through rents. Also, this is one investment that is inflation-friendly as rising costs increase the value of your property and the rent. Lastly, you can increase the value of your investment by upgrading it and keeping it in sync with the changing needs of the renters or buyers.