In Last 2 Articles we read about Why should you invest in Real Estate for your Wealth Building and about following Factors:
Today we will discuss about 3 more factors because of which you should always consider Real Estate as Primary Investment for fast wealth building. These are:
- Cash Flows
- Mortgage Payoff
- Buy Below market value
Cash Flows
If somebody is already into Real Estate investing and then some good investments, then he or she might be aware that most real estate investments pushes your cash flows from rent collections every month. In today’s scenario, Even though today’s cash flows of rental income in many high-priced parts of the country are giving very low returns of just 4 to 8 percent a year of rental income depending on type of property, But yes these cash flows will surely increase over a period of time. When combined together: Inflation and market demand can push rents up an average of 3 to 5 percent a year. If one still compares older market by today’s rental income have increased as well as there are other means introduced for getting higher rental returns on properties.
And even individual’s cash flow will increase when interest rates of bank go down as due to a re-finance option available at a lower interest rate, EMI will go down of the bank where you are repaying your loan and you can save some amount from your EMI’s, But your rental value will have no effect on that.
Home Loan Payoff (Amortization)
Let’s Imagine for a moment that Inflation ends and market demand as well as property appreciation even stops. You are already collecting enough rents from your properties you have invested in to pay your daily expenses and home loan EMI payments.
With stagnant rent collections and property values, do you think have you made a poor investment in property?
Not at all.
As you pay off your Home loan installments, your equity in the property continues to grow as you are repaying your home loan from rental income your property is generating that too without an increase in your property’s value.
Your Equity Grows Tenfold
Just Assume, you made a real estate investments and bought a property worth Rs. 50,00,000/- with a Down Payment of Rs. 5,00,000/-. After 30 years of your home loan tenure, you own that property which was valued Rs. 50,00,000/- free and clear. Even without any positive cash flows or price increases, you’ve multi-plied your original investment of Rs. 5,00,000/- ten times over. In terms of compound interest, that gain from amortization i.e. paying off the Home loan installments with rent collections alone equals an annual rate of return of 8 percent.
Amortization Alone Often Beats Other Investments
Now You might not think 8 percent sounds like much of a return. But yes it’s certainly better than bonds, annuities, certificate’s of deposit, and even stocks if you check data and statistics provided.
This calculation which I have assumed here is 8 percent property returns result only from home loan installment paid, whereas the returns from the other investments cited refer to total returns i.e. dividends or interest and asset appreciation.
On the other side, always make a note that your rent collections permitted you to pay off your Home loan installment in 20 years instead of 30 years, your return from paying off your property’s loan would climb to an annual rate of 12 percent. And this is very practical as Rental Return increases every year if tenant is same in residential property and every 3 years in commercial property if lease period is longer of 9 or 13 years.
Buy Below Market Value
In real estate industry you can make money the moment you buy a property from the market. Unlike most other investments, you can buy property for less than its market value. This property is sold by Distressed owners, owners who want to sell fast and hassle-free, lenders who own foreclosures, and poorly informed sellers frequently part with their properties at prices or terms that immediately put returns on your investments into your net worth.
Tomorrow will be sharing another 3 factors, Like CREATE PROPERTY VALUE, CREATE SITE VALUE & CREATE NEIGHBOURHOOD VALUE.
Connect For More Details at : HEIMAT ADVISORY
Author: NIKITA DAGAR
