One of the most profitable ways for attaining financial freedom in real estate is to invest money in rental properties. There are so many ways to achieve investment returns such as appreciation, tax benefits, cash flow and the mortgage payoff leading to equity built. If you are about to make decision related to rental property purchase, you need to focus on two main profit centers; real estate appreciation VS cash flow. You must keep in mind that all rental properties do not offer both of above mentioned profit centers and there are least possibilities of them available in the equal proportion. So, the first thing to do is to keep in view the priorities and decide your strategy before setting out to attain a rental property.
How Do You Want to Make Money with the Rental Property?
There is a plethora of reasons for investing for cash flow or Real Estate Appreciation. You may decide to invest only for the real estate appreciation, cash flow can be the sole reason or both of these are in your mind. However, in this blog you will find all that you must-know about the real estate appreciation, focusing on the question: ‘Is it a bad idea to invest only for the real estate appreciation?
What is meant By Real Estate Appreciation?
The monetary value of a property increases by the passage of time and this concept is called real estate appreciation. This is a kind of strategy in which the investors decide to search for the properties that they think will increase in value with the passage of time and they can sell it at profit in future. This is a way to enjoy positive return on investment over time.
What are some Key Factors That Influence the Real Estate Appreciation?
Here are some of the salient factors that you must keep in view before buying for real estate appreciation.
The ideal Location:
The factor that plays vital role in real estate appreciation is its location. The key step for attaining good return on investment with buy and hold real estate investment strategy is to look for the right real estate market. It is a fact that average real estate appreciation ratio varies by the location. If you aim to get good return and lucrative investment, you need to find a location that is located at up and coming real estate market. For this purpose, you have to do a detailed market research before making a final decision. There are some main points to consider for identifying the growing real estate market. These features would easily lead you to the real estate appreciation effortlessly.
- General economic and job market growth.
- Easy access to social amenities such as hospitals, schools, restaurants.
- Promising future development plans including shopping malls, etc.
- Growth in population.
- Reducing vacancy rates
- Higher absorption rate
You may also look for historical real estate appreciation figure to find the desired real estate market. Look at the key factors that are leading to the real estate appreciation.
Look for the Right Time:
The right time to buy the real estate can help you to enjoy lucrative real estate appreciation. Keeping an eye on the real estate cycle and comparing with your investment strategy is the key point in this matter. Reading successfully about the current real estate can help you in reaching to your high goals. For example, if you purchase a property in the middle of house market crash, you are most likely to get a massive real estate appreciation in near future.
The Cost of Borrowing:
Another influential factor of real estate appreciation is the cost of borrowing. The time when the lending guidelines are loosening and mortgage interest rates are reducing, more people will afford to buy the mortgages. This will be the ideal time for the increase in demand of residential houses leading them to appreciate in value.
Consider the Property Characteristics:
Apart from the above mentioned factors, the investors should also keep an eye on the actual investment property. For instance, you can buy a slightly distressed property at the reasonable rate and enforce the appreciation by investing on minor and crucial improvements on the property. Sometimes, the neighborhood also effects on the appreciation rates. The good neighborhood can effect positively in constant rise in appreciation.
Should We Invest Solely for Real Estate Appreciation?
Another question that may pop into your mind would be; should you invest solely on the real estate appreciation? In this case you would totally be depending on your investment property to appreciate to get benefit from it. This is the only reason why we call it a very risky investment plan as a wrong decision can get you in trouble.
Although, there are so many ways to predict the possibility of real estate appreciation but there is never an absolute way to determine if property will keep rising. In other words, you may say that real estate appreciation is just a matter of luck. If you are lucky enough, you may get a profit out of ordinary investment, and if not, even a well-planned strategy would fail.
What to Do If you are a Beginner Real Estate Investor?
If you are a beginner in this field and have planned to try your luck in real estate appreciation, there are certain things that you must know. The first point to note is that you should not depend on real estate appreciation alone as it will be a very risky investment strategy. It is strongly recommended that you invest in positive cash flow income properties with some chances of appreciation. Positive cash flow means that the investment will provide you steady profit on regular basis. With this you can get a reasonable estimate of potential cash flow and lesser investment risk.