Making an investment in residential property can be productive if it is done correctly. But many individuals sometimes confuse themselves and end up taking a beating in the market because they do not know whether or not they are investing for rental yield or capital appreciation.
In The UK, where this kind of investing is sometimes known as buy to let, many people lost money in the giant property bull market up until 2007 because they thought that property prices would just keep on rising and that they wouldn't fall.
So instead of scrupulously considering each potential property investment on its advantages, most of them just purchased any old thing in the hopes that it'd be worth a lot more one or two years later on.
The first step to get round this elemental mistake is to have a look at the rental yield that you may earn from the property. The net rental yield is a measure under which you take away yearly expenses like insurance and agents fees from the yearly hire that you expect to get from the property. You then divide that by the price of the property. If the net yield is lower than your price of capital (mostly that will be your mortgage IR) then the investment makes no sense.
What's more, this calculation lets you compare the possible return you could earn on a yearly bases against other possible investments like stocks or shares. In recent years smart speculators have managed to pick up stocks in great companies on dividend yields that are far better than what they might hope to get from property.
Now a few people may disagree that this figure doesn't take into consideration the indisputable fact that the value of the property may go up. My response is simple. The value may go down too. There are no guarantees in investing, but at least being sure that your property investment can make enough cash to cover its own costs places you in a much safer position than if you were just gambling on a market recovery.
In The UK, where this kind of investing is sometimes known as buy to let, many people lost money in the giant property bull market up until 2007 because they thought that property prices would just keep on rising and that they wouldn't fall.
So instead of scrupulously considering each potential property investment on its advantages, most of them just purchased any old thing in the hopes that it'd be worth a lot more one or two years later on.
The first step to get round this elemental mistake is to have a look at the rental yield that you may earn from the property. The net rental yield is a measure under which you take away yearly expenses like insurance and agents fees from the yearly hire that you expect to get from the property. You then divide that by the price of the property. If the net yield is lower than your price of capital (mostly that will be your mortgage IR) then the investment makes no sense.
What's more, this calculation lets you compare the possible return you could earn on a yearly bases against other possible investments like stocks or shares. In recent years smart speculators have managed to pick up stocks in great companies on dividend yields that are far better than what they might hope to get from property.
Now a few people may disagree that this figure doesn't take into consideration the indisputable fact that the value of the property may go up. My response is simple. The value may go down too. There are no guarantees in investing, but at least being sure that your property investment can make enough cash to cover its own costs places you in a much safer position than if you were just gambling on a market recovery.
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You'll be able to find out more about Buy to Let by visiting my site.It has articles on every aspect of property investing and a favored beginners guide to buy to let.
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