Here are few reasons why an income property can be such a lucrative investment.
1. Cash Flow from Rental Income
As is the case with a stock that pays dividends, a properly selected and managed rental property can provide a steady income stream in the form of rental payments. Rental property returns typically exceed dividend yields. Real estate investors have more control over risks to their cash flow. Though there are slumps in real estate prices and slow markets, people who own residential investment property usually lease it for many years, without experiencing corresponding decreases in rent amounts.
2. Increases in Value Due to Appreciation
Historically, real estate has shown to be an excellent source of profit through the increase in investment property value over time.
If you invest in the share market, you typically need to hire a broker to handle your trades for you, and the value of any shareholding is reliant on market conditions and the actions of the people running that company – introducing an element of uncertainty. This is much less the case in property: once you’ve settled, you directly own the asset and you have complete control over it (assuming you can keep up the mortgage repayments and within the bounds of planning law). That’s a hugely powerful thing, as it means that you can influence both asset worth (by adding value) and cash flow (e.g., by raising the rent) directly – something that’s nigh-on impossible to do with shares in a company.
4.Still keep growing – even when you’re retired
Many investors following a capital growth strategy are putting together a nest egg for their retirement – whether that’s based on selling down and creating a lump sum, partially selling down and living off rental income, or on living off a line of credit. However, what some investors forget is that, even after they retire in, say, 20 years, yield and value will continue to improve – making you worth more each year.
5. Improving Your Investment Property – More Value at Sale
While it is providing cash flow, you can also improve your investment property to earn more profit should you choose to liquidate it. Upgrades to the appearance and functionality of an investment property can significantly increase its value. As trends and styles change, keeping the property interesting to renters can help you retain its value.
For a maximum return on investment, make note of improvements that actually increase a property’s value. Installing energy efficient appliances and windows increases a property’s value, as does adding a bathroom and remodelling a room. Insulating a property also increases its value.
6. Find that “Steal of a Deal”
Finding a value-priced property is the most effective way to increase your net worth. Such deals aren’t easy to come by, and savvy investors do their homework, browsing property listings frequently, to take advantage of opportunities when they arise.
Investors who wish to increase the value of their portfolio with real estate should also ensure that they have their financial ducks in a row. Good credit scores are a must, as is having the cash savings for the required down payment usually 20 percent for investment loans.