End-users, as well as investors, are in high demand for real estate, making it one of the most profitable businesses worldwide. Potential buyers have found the city attractive because of its many job opportunities. Dealing with the best investment real estate agent is a fact of life when purchasing real estate for investments.
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There are four elements of return associated with investment property. They are:
1. Cash Flow
The formula for cash flow is rental income minus operating expenses. Operating expenses include mortgage payments, property taxes, insurance, utilities, upgrades, and repairs.
Usually, investors who require significant cash flow will significantly decrease their profit in the other three elements of return.
2. Equity Growth by Amortization
This occurs as the principle is deducted from your mortgage loan balance. Typically, mortgage payments are the same each month and are paid by the rental income.
These payments usually cover both principal and interest. As you make payments, you pay off the principal which increases your equity.
3. Equity Growth by Value Appreciation
When properties increase in value, you gain equity. There are two kinds of appreciation: (1) inflationary and (2) demand.
Inflationary appreciation is the increase in property value due to the reduced purchasing power of the dollar. Demand appreciation is the increase in property value due to the limited supply of property.
4. Tax Shelter Benefits
By selecting a property with high tax shelter benefits, investors can significantly reduce their federal and state tax liability.