What is the first thing that comes to mind when we hear the word investing? To some it might be the stock exchange, to others 401k or mutual funds, etc… But few know the power behind real estate investing.

There are many benefits in investing in real estate. In this article we will briefly talk about six ways you, as an investor or home owner, can add to your investment portfolio.

1. Appreciation

Appreciation increases the value of a property and it happens in different ways but mainly through inflation. Increased value of a property can mean a sale and reinvestment towards a higher valued property, or provide an equity line of credit to use for other investments.

2. Inflation-Proof Investment

When inflation increases so do renters, while mortgage payments on the property remain firm. The result of this is an increase of cash flow. When inflation goes up, mortgages become more expensive for average consumers. An increase of renters will create more demand, so rent rates can escalate.

3. Rental Yield

Rental yield is another way we benefit from investing in real estate. It is the percentage return from direct rental income for a property and can be calculated as either gross or net. The equation takes the income you generate from a rental property as a percentage of the property’s value. Investors use rental yield to do comparisons of properties. A high rental yield results in better cash flow, which helps to improve the return on investment.

4. Leverage

Leverage can give greater returns to our investment but adds risk.  For example, using $250,000 in leveraged assets to buy four properties with down payments, instead of purchasing one property for $250,000 cash.  On each of the four properties you can benefit from appreciation, cash flow from renters and even receive tax incentives for each property. The only risk would be not finding tenants to rent your properties.

5. Amortization

This means paying down loans. This can free up more investment resources. Many investors use the increased equity in one property to free up funds to invest in others.

6. Improve Property To Build Equity

Flipping properties is a famous way investors benefit from real estate investing. They intentionally purchase properties that lack certain features or could use improvements, having already calculated that the value of the improvements done to the property will exceed their cost and result in an increase in equity.

By far, investing in real estate has been the way many Americans have built a lucrative investment portfolio.

Feel free to leave your comments and add your experience about how you have benefited in this lucrative lifestyle.

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