By James Kimmons
When you purchase a company’s stock certificates, you’re looking for appreciation in the stock value, and perhaps dividend income if it is paid by the company. With bonds, you’re looking for income yield on the interest rate paid by the bonds. With a real estate investment property, there are more ways in which to realize a superior return on your investment. Learn the ways in which your real estate investment can increase in value, as well as provide good cash flow.
1. Cash Flow from Rental Income
As with a stock that pays dividends, a properly selected and managed rental property will provide a steady stream of income in the form of rental payments. Historically, this percentage of return has exceeded that of dividend yields on average.
The real estate investor has a bit more control over the risks to that cash flow also. Though there are downturns in real estate prices and homes sold in some years and areas, generally those renting property in which to live will continue to rent and without a corresponding decrease in rent amounts.
2. Increases in Value Due to Appreciation
Historically, real estate has shown to be an excellent source profit through the increase in investment property value over time. Of course, one cannot predict that this trend will always be true, and it varies significantly by area.
3. Improving Your Investment Property – More Value at Sale
While it’s providing rental income cash flow, your property can also be improved in order to garner a better price and more profit when you do choose to liquidate it as an investment.
Upgrades to the appearance and functionality of a real estate investment property can significantly increase value. As trends and styles change, keeping the property interesting to renters will at the very least help you to retain value.
4. Inflation is Your Friend When it Comes to Rent
Though your fixed mortgage will remain constant over time, inflation that drives up home construction costs will also drive up rents. Population growth creates housing demand, again driving up rent prices if supply cannot keep pace.
5. Paying Off Your Mortgage
As you pay down your mortgage, the increase in equity can be used for other purposes and investments. Though it’s frequently accessed by selling the property, a real estate investor can also take out equity loans if the terms are right and use those funds for more investing or other purposes.
6. You Could Just Find that “Steal of a Deal”
This is the last item, though it’s one of the first ones many investors think about. There are opportunities to buy below market, but the other advantages above will probably be what the average investor experiences most of the time.
Should you be fortunate enough and have the experience to locate a value-priced property, this is an immediate way to increase your net worth and the value of your investment portfolio.
