Here are three simple guidelines to follow if you’re planning to make a success of real estate investment. Of course it’s not anything, but at the very least, if you want to become a good real estate investor, you have to be able to commit to these issues. Learn more about The Realty Medics.
Are we to get staring?
Recognize the Basics
Investing in real estate includes the purchase, holding and selling of real estate assets, with the goal of using capital inflows for possible future cash outflows and thereby producing a favorable return on that investment.
Less beneficial than stock investments (which typically require less investor equity) provide the benefit of heavily leveraging an immovable property. In other words, you can use the capital of other people with an investment in real estate to magnify the rate of return and manage a much greater investment than would otherwise be feasible. In fact, you can literally use other people’s money to pay off your loan with the rental house.
Yet aside from leverage, real estate investment gives investors other advantages, such as annual after-tax cash flow yields, equity accumulation through asset appreciation, and after-sale cash flow. Plus, non-monetary returns like ownership pride, the protection you manage assets, and diversification of portfolios.
Capital is, of course, required, there are risks associated with investing in real estate, and property investment in real estate can be management-intensive. Nevertheless, investment in real estate is a source of wealth and that should be ample incentive for us to want to build on it.
Comprise the elements of return
Immovable property is not purchased, owned, or sold on emotion. Investing in real estate is not a love affair; it is about a return on investment. As such, cautious real estate investors often consider these four essential return elements to assess the potential benefits of buying, holding on to, or selling an investment in an income property.
- Cash flow-The amount of money that comes in from rentals and other revenue minus the sum that goes out for operating expenses and debt service (loan payment) determines the cash flow of a house. In fact, real estate investing is all about the cash flow of the investment property. You are buying the income stream of a rental house, so be sure that the figures you later depend on to determine the cash flow are accurate and right.
- Appreciation-This is the change of a property’s value over time, or potential sale price minus the initial purchase price. However, the basic truth about appreciation to realize is that real estate investors are purchasing investment property’s revenue stream. Therefore, it stands to reason that the more revenue you can sell, the more value you can expect your property to be. In other words, make a judgment about the likelihood of an income rise and throw it into your decision-making process.
- Debt Amortization-This means a regular debt reduction over time resulting in increased equity. Since lenders assess rental property based on income stream, they provide transparent and succinct cash flow reports to lenders when purchasing multifamily property. Properties with income and expenditures correctly described to the lender improve the investor’s chances of securing a favorable financing.
- Tax Shelter-This means a legitimate way to use real estate investment property to reduce annual or final taxes on income. However, no single-size-fits-all, and the cautious real estate investor will consult with a tax advisor to be sure of what the existing tax laws are for the investor in any given year.