If you are like most of my investors, you probably ask a lot of good questions.
I hear these two questions the most:
- What is a good return on investment?
- What kind of return should I look for when investing in apartments?
Rate of Return
Let us first define what the rate of return means. Do you have any idea?
There are numerous ways to define the rate of return for investors. The long list may include return on equity, internal rate of return, cap rate, cash on cash and so forth. It could sometimes get so confusing!
What we all just want to know is… WHICH ONE IS CORRECT?
If you ask me, I’d say it depends on your personal situation.
The main reason as to why I’m telling you that is because each of us look at a good return on investment in our own unique way.
We have different opinions, perceptions, needs, preferences, goals and sometimes circumstances in our lives that dictate our investment decisions.
My suggestion for you is to have an INTROSPECTION. A what??
I know this sounds a bit strange, but ask yourself:
"What does a good rate of return mean to me?"
Opinions from experts are still valuable.
However bear in mind that it all boils down to YOU. A broker, attorney, or even a family member or friend will stay as an advisor, but you are the ULTIMATE DECISION MAKER.
A Good Return on Investment
There are FOUR things you SHOULD KNOW and take note of to make a good return by investing in real estate.
1 – Tax Benefits
Many tax laws favor real estate investors and you can take advantage of this while you own the property as well as when you sell.
2 – Property Appreciation
If you buy a property right and manage it well, the value of the property will appreciate over time as the Net Operating Income (NOI) increases.
Caution: As we have seen in recent times, appreciation is NOT guaranteed.
3 – Equity Creation
The tenants are creating equity for you by lowering your mortgage balance on a monthly basis.
4 – Cash Flow
Monthly net cash flow after paying the expenses and mortgage plus when you sell the property.
It’s Your Choice
Always remember these four important key items. Remembering this may greatly increase your wealth over time.
From my experience, I am not aware of a stock or bond that has the same investment benefits as real estate.
Once again, I’d like to say that the choice solely lies within YOU.
As time passes by there are a lot of factors that could possibly change the decisions you make about investing, but education is the key.
Once you are informed, you can make better investment decisions.