For a new investor, investing in real estate offers a tremendous opportunity to create wealth. As with all investments, there needs to be some due diligence performed to help put the probabilities for success on your side. Here are some of the advantages of buying real estate.
Rental Income
People need a place to live and a place to operate a business. There are plenty of credit-worthy men or women who do not own their own home or the building in which they operate their business and need to rent space. These needs offer real estate investors an opportunity rent out their property and receive rental income. Naturally there are operating expenses in owning a piece of property such as mortgages, maintenance, and utilities. The difference between the money collected from rent and operating expenses associated with owning the property, if positive, is your profit.
Appreciation
Aside from receiving rental income, another way to create wealth from real estate investing is to have the property you own appreciate in value. For example, the only real estate you own may be your primary residence. In this case, you are not receiving any rental income, but this ownership still offers the possibility for your home to appreciate in value.
Leverage
Leverage is simply using someone else’s money to buy something. A mortgage is an example of leverage. Leverage can increase your returns. Consider this example. You purchase a home for $200,000 and use $40,000 of your own money and borrow the rest. If after 5 years that home is worth $220,000, the home has appreciated 10% by going up $20,000 in value. If you sold the home and paid back the mortgage you would have $60,000 (not including commissions etc for this example). This would represent a 50% return on your money.
Understand that all of the above advantages could also become liabilities as well should a property go unrented for any length of time or depreciate in value.
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