The 5-Ways Investors Make Money in Real Estate
5 Ways Investors Make Money in Real Estate
Growing wealth in real estate is much much more than that rental check. Yes, it’s important but cash flow is not everything; in fact, it’s just one of the 5 primary ways an investor makes their money.
Most likely, this is a different property analysis perspective than you’ve seen elsewhere, and that’s because they left out the good parts.
To run your numbers on a potential property, you need to know the 5 primary and distinct ways you will be making money in real estate. And they are:
- Cash flow, and expected rent increases in the next 5 years (average % annually)
- Estimated natural appreciation (% annually)
- Principle pay down of mortgage. (Starts around 1% but this increase every year to 100%!)
- Forced appreciation through a renovation. (% return on your construction dollar. Of note, this may be the largest % depending on the scope and size of your renovation).
- Tax depreciation (3.6%/yr on the total value of the structure, excludes land value)
The Bottom Line:
if you aren't including all of these, you aren't running your property analysis properly. The savvy investor must capture the total Return on Investment for your property. As a guide, my typical small multifamily property returns an average of %16-18%, annually. That's more than double the S&P stock market returns over time, my baseline return goal. And I'm good with that.
Still a little confused? Want to discuss more? Thinking about investing in real estate? Call us today. We are happy to chat and answer any questions on the road to acquiring your next property.
Until next time. Stay Curious. Stay Skeptical.
Herzliche Grüße,
