With so many investment options available today, Real Estate Investing continues to be THE popular solution for the masses. There are plenty of reasons for this. Its simple, it well known, there’s a wealth of available information on the topic, its proven to work, anyone can do it and the list goes on and on. While all of these reasons are great, it really comes down the single most important reason… its an excellent way to make money.
At the end of the day, that’s why people are investing in real estate, right? But did you know how many ways you can make money on a single real estate investment? Well, let me point them out to you…
1. Cash on Cash Return on Investment (ROI)
Your Cash on Cash ROI is the most popular and obvious place to look. In its simplest form, your CoC ROI is based on how much money you put in vs how much money you’re profiting based on the initial investment. This formula works for both “flippers” (those who buy, rehab and sell) and “holders” (those who buy, rehab and rent overtime). For a more detailed explanation, check out our Whiteboard Session on “Understanding Your Cash-on-Cash Return on Investment” in our video library.
Appreciation is the amount your investment property increases in value from year to year, or even month to month in some hotter markets. Your expected appreciation rate is highly predicated on where your investment property is located. North Peak Investments focuses our attention primarily in the midwest markets. Appreciation in these areas are predictable and realistic, approximately 2% – 3.5% annually although some midwest markets are currently appreciating as high as 10%. We like this for its predictability and resilience when housing markets go down. The realization of appreciation comes when you refinance the property, when you sell the property or when you leverage the additional equity to invest in future opportunities.
Amortization is a long fancy word for the “paying off of a debt”. This is commonly referred to as the Amortization Schedule. “Holder” investors benefit the most from Amortization as their tenants service the pay-down of this debt with their monthly rental payments. Overtime, as the renter continues to pay the debt, the amount of equity in the property continues to grow as the gap between the loan debt and property value increase. “Flippers” may also benefit from amortization in a very limited capacity as their turn-around time for selling the investment property is very short and the full benefits of amortization are not realized.
4. Year End Tax Benefits/Deductions
The tax benefits and deductions that come with rental real estate investing can not overstated. While I see it as a less “sexy” angle of making money, owning investment real estate has quite a few useful and creative options. Here’s a list a great ways to cash in and put money back in your pocket each year: Interest, Depreciation, Repairs, Local Travel, Long Distance Travel, Home Office, Employees and Independent Contractors, Casualty and Theft Losses, Insurance and Legal and Professional Services. For a more extensive list with detailed info please visit HERE to expand your knowledge.
While this article isn’t exhausting, we’ve covered the basics of the most popular options and what should be first on your list in consideration of real estate investing.
North Peak Investments offers asset based investment opportunities specializing in single family, multi-family and commercial properties. Contact us for more information about our current offerings.