Investing in stocks, mutual funds and bonds yield returns for sure, but the risk involved is too high and returns are too low. If there are higher returns they are riskier and the safer bonds yield lower returns. That’s how real estate investors have figured out attractive returns on account of multiple income streams out of the real estate investments. Let’s have a look at some of the ways, how real estate can benefit your portfolio:
A percentage of rental return earned can be calculated either on net basis or gross. There are experienced investors who calculate the net rental return which includes the expenses, taxes and all the other costs into account while dividing the property value. This doesn’t take mortgage payments into consideration and hence could be a negative cash flow. Because of this, there are many investors who look at cash-on-cash rental 0return. This is still only one of the ways to get returns on real estate investment that exceeds average stock and bond dividend returns.
The second and traditionally proven way of real estate investment return is the appreciation in value of a rental property in accordance to inflation. This means selling the property and reinvesting in higher priced property or giving an equity line of credit to use for other investments.
The rental income increases with inflation but the mortgage payment on the rental property remains constant. Hence there is an increase in the cash flow without any added expense for holding the property. Now when inflation rises, it adds to the number of renters because mortgages become very expensive for average customers. This is exactly how rentals escalate as more number of renters increase the demand!
By leveraging, one can buy properties that yields good rentals. You can use the fund in buying three properties with down payments instead of one and can greatly increase the return on investment. It is all about leveraging which does involve risk, but successful investors must comprehend how it impacts their investments in real estate.
By paying off the loans, you can increase the leverage by liberating more investment resources. You can also use increased equity of one property to liberalise fund to invest in other options.
There are investors who would knowingly purchase a property at the cost price which has a few lacking points or can do improvements and repairs on it. They have already calculated the value of repairs and imporovements which certainly exceeds costs but along with it also results to increase in equity.
As explained above, real estate investments can fetch multi-faceted investment returns unlike the stocks and bonds which involve only value appreciation potential and have low interest or dividend income.
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