Bonds, stocks, investment funds, annuities, bank products, you name it. There are a lot of available investment options for you out there but one of them stands out: property investment. The multi-faceted investment returns from property has been proven time and time again. On top of that, property investing has multiple income streams, and if you’re wise enough; if you’re educated enough, you can take advantage of all of these streams.
So considering that you may be weighing in on your investment options right now, here are some of the compelling reasons you should be investing in rental property.
YOU CAN GENERATE YIELD
You have two choices: lease a commercial property or lease a residential property. The Return on Investment (ROI) comes in the form of Rental Yield. That’s the percentage of income return versus the costs associated with the property.
We’ll get to discuss more about Rental Yield in upcoming blog posts. But here’s why property rentals are a great investment: they permit a steady flow of income. That’s why you hear people say, ‘Landlords get rich in their sleep.’
YOU CAN CREATE EQUITY
Rental properties appreciate over time. This means that apart from the property providing rental income, it also provides three equally important things:
It creates more equity that you can use to fund other investments
It creates further value that you can use to invest in properties of higher value
Its increased value can lead to a profitable sale
So just like land, rental property is classified as an appreciating asset. But how exactly is equity created? Two of the most common things property investors opt for are:
Mortage payments. When you pay your mortgage on your rental property, you’re freeing up equity. This equity can then be used in leveraging.
Property renovation. Some property investors buy propreties at market price. Then, they renovate the property. Renovation can result in two things: increase market value for the property, and increased rental yield potential.
YOU CAN GENERATE MORE CASHFLOW
Rental properties are inflation-proof. How? Inflation is the increase in the value of goods against the decreasing purchasing power of money. With that in mind, rental properties appreciate, rents increase, but mortgage payments for the rental property remain the same.
As a consequence, cashflow increases while the costs of holding the property remains the same.
In addition, mortgage products for new customers usually increase in response to inflation. If that happens, more people will opt to rent, thus rental increasing values.
YOU CAN LEVERAGE
Picture this: you’re eyeing to purchase three more rental properties with a downpayment of $100,000 each. That’s a total of $300,000. But because your rental property has equity already – $100,000 for example – you can use that to finance your downpayment for the same amount on all three properties instead of only one property.
Still, know that leveraging comes with a considerable amount of risk. So the key still lies on education: know how leveraging works, know how the market works, and know how to choose the right properties to buy. Consult a professional is necessary.
Investment options like stock and bonds do provide value to investors. But unlike rental property investment, they only appreciate in value and provide low to no returns. These returns may be found in property investing.