When shares are bought, you expect it’s price to rise and receive dividends from them. In the case of bonds, you’d expect interest yield on the rate of interest offered by the bond. However, the ROI on real estate investments are numerous. You can expect an increase in your cash inflow along with an appreciation of your invested capital. Let’s take a quick look at the different kinds of Real Estate returns.
- 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 secondary income. This is applicable to all investors who are not purchasing the property for the objective of living there. This income can come in really handy for investors who purchase the property by availing a loan. The rental income usually helps them take care of the loan instalments and as time goes the loan is repaid without causing holes 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 relatively long periods of time, which help guarantee stability. Also, investing in a city or area that is commercially buzzing ensures that you always have tenants looking for rental property. This gives you a better control over risks to cash flow.
- Capital Appreciation
Real Estate prices, around the world, are known to rise. There are periods of time when the rise is slow and other times when the rise is phenomenally high. However, you can be sure to 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 analyse the area in which you are buying the property, well. Speak to some property experts to understand their estimated and expected growth.
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 also make timely changes in 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 cold areas), centralized air-conditioning (if you live in warmer areas), large windows (to allow maximum daylight), etc.
- Inflation causes you more ‘good than harm’!
Typically, we all dread inflation. We invest to beat inflation and financially secure our futures. When you buy a property on a housing loan, your instalments 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 the investor in more ways than one.
- You can find a ‘Distress Seller’ and strike a jackpot
We don’t recommend that you buy a property only when you find one at throwaway prices, but the fact is that the real estate is one 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 instantly increase your net worth.
As discussed above, real estate investments can offer different types of returns depending on how you handle them. It is an active investment option, where you can influence the return on our investment. Real estate investments with the best ROIs are ones where:
- Properties are situated in fast-developing cities/areas
- The market is well researched, to find a good deal
- The property is leased at market rates
- The rental income is used to either repay the loan instalments or to upgrade the property
Being mindful of these four points can ensure that the real estate returns on your investment are better than those of other investment options.
Investments in real estate are bound to result in an increase in value and could provide you regular income if you choose to lease your property for rent. It is an investment type that is inflation-friendly – as the rising costs increase the value of your property. Furthermore, you can increase the value of your investments by maintaining them based on the changing needs of the renters/buyers.