Why Invest In Real Estate?

Why Invest In Real Estate?

There will always be a need for housing, so it is safe to say the real estate investment is a good choice for anyone looking to make a little bit of money. There are many different types of ways that someone can invest in real estate and many different ways in which someone can stand to make a profit. In this article we will look at 3 commonly used terms in real estate investment. They are: appreciation, rental yield, and improvement equity. These are 3 ways in which the investor stands to make money.

Appreciation

With inflation, rental values generally appreciate in value, whereby the investor stands to make more profit. If the investor can increase rent so that it does not only meet the rise in inflation costs but also gives him a profit, without the tenant complaining too much, he can really begin to thrive from his investment. Real estate is an investment that normally appreciates in value as time goes by. If you are willing to wait there is a lot of money to be had. This is a great way for an investor to make money, as they really have to do nothing but sit back and hold on to the property until inflation occurs.

Rental Yield

When talking about rental yields, it is usually referring to net rental yields. Net rental yield is the percentage you make from rentals, usually over a year, after you have subtracted all of the costs. A high rental yield is good, as it means more profit for the owner. A lot of times it will show up in the negatives, as it does not take mortgages, or leverage, into consideration. This is also a reason why a lot of investors do not like to calculate the net rental yield, instead they use the cash-on-cash rental yield calculation to figure out what profit they have made. It feels nice to see a number with a plus sign beside it instead of a negative, or instead of the number being red, or however it is they like to show money in the negative amount. So, summing it up, a rental yield is basically a way to calculate the profit you have made through renting your investment out to tenants after all the costs have been figured out.

Vacant store front.

Improvement Equity

Many investors buy damaged properties in hopes that after fixing the place up they will be able to sell the property above it’s original market value plus the cost of repairs. The equity of the property literally rises as it is fixed and repaired. If you are a handyman this may be for you as you could save a lot of costs by doing the repairs yourself. Improvement equities are for those willing to spend a little extra money in order to make a little extra money, or those who do not mind putting in a little extra elbow grease in order to make some more money.

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