Residential Real Estate Investment: Some reasons for its popularity Rising Residential investment property has gained immense popularity over the last ten years. Due to the increased demand for rental housing, and the resulting rise in rental income, more investors are likely to plunge in residential real estate. However, all residential properties are profitable investments, and some investors may lose money if they do not choose with discretion.
When you're ready to buy a residential investment property, your key intent should be to build, to reduce personnel costs and gain an income-generating assets. In general, you should invest in a property whose rental income will cover its mortgage and any operating expenses. Such property is called "self-financing". Once the mortgage is repaid, you have two options - you can continue to reap the benefits of a regular income from rent, or you can sell the property at market value (provided that the property has increased) and invest elsewhere.
In general, there are two main sources of income from residential property investment: performance and capital gains.
The yield is the expected return of the annual rent, which is expressed as a percentage of the purchase price. For example, if the purchase price of a property is $ 100,000 and its expected annual rental return is $ 8,000, the yield is said to be 8%. The yield, in combination with the terms of the mortgage, determines personal expenses from the investor, to acquire the property.
capital gain is the appreciation of the value of a property. Or in other words, the benefits accrued from selling an asset. It is expressed in growth rate in percent on an annual basis. Capital gains are generally estimated from the movements of average house prices.
It is wise to analyze both the capital gain and yield potential when selecting a residential investment property. The typical problem faced by you as an investor is that high performance properties normally offer low capital gains, and vice versa. You must find a balance between yield and capital gains, so that best suits your investment goals. What constitutes the right balance depends on your capital gain and the expected return.
It is recommended that your statements of a residential investment property is based on a comprehensive analysis of current trends and market conditions. It is not advisable to rely on intuitions when scads of money are involved.
Overall, a property in residential investment is a viable option for investment if the returns meet your expectations, and superior to those achieved by other possible sources of investment.
Copyright Âc 2006 Joel Teo. All rights reserved.
Posted on January 17, 2010.
