The hallmark of investing in real estate is the expectation of generating a profitable return. The smart thing for any investor to do is consider all possible returns. In this article, we’ll briefly discuss what you can expect to receive from various sources when investing in real estate (not for the purpose of a personal residence).
These benefits come from sources that can be measured directly by costs or returns. Simply put, it refers to how much money can be made by owning a rented property.
Income from rental that remains after taxes, debt service, and operating expenses becomes your income. Obviously over time, there are factors that could influence income from rental received. These include competition in the real estate market or changes in the market that drastically affect the market, resulting in disparity between what previous renters are willing to pay now. Nevertheless, if your cash-in exceeds the cash-out, it’s money in your wallet.
This refers to nominal or real increases in the value of properties:
- Real increases occur if properties increase in value at rates that exceed the measure of inflation in the market basket or economy that is being used as a measure of buying power.
- Nominal increases mean that properties have increased in absolute dollar terms.
Appreciation can be realized either through selling the real estate, or other disposition of it, or by borrowing against the increased value of it.
Tax shelter benefits apply to most real estate investments, created by the opportunity to defer income tax through depreciation, as well as a range of tax credits.