How to choose a real estate investment?
Sep 30, 2022
New York
By Internet
  • Guide
  • real estate investment
  • rental return
  • asset appreciation
Abstract:
Investors can refer to these two points: rental return and asset appreciation.What is rental return?When it comes to rental return, let's first understand rental return.

Investors can refer to these two points: rental return and asset appreciation.

What is rental return?

When it comes to rental return, let's first understand rental return.

The rental return is the ratio of the monthly rent received to the price of the same house, which can be used to measure the investment return of the property and can reflect the real market demand.

In addition, rental return can help us pay off our mortgage, which is the main reason why investors buy investment properties.

Rental return is a low risk investment that generates cash flow, which not only protects investors from interest rate shocks, but also reduces ongoing cash commitments.

Of course, it also has the disadvantage that when the property is sold, there may be a situation where the capital appreciation gain is less than the strong capital growth, especially when the compound annual appreciation rate of the home is also taken into account.

What is capital appreciation?

Capital appreciation is the value earned or lost by subtracting the current asset value of the property from the price at the time of purchase.

Realizable property held for sale at a price higher than the purchase price generates a profit when sold, and this profit is the realized capital gain.

Gaining capital appreciation is the purpose of investing.

For the long term, assuming a strong annual capital growth rate defined as inflation plus 4-5%, an investor should maintain capital appreciation in the range of 6.5% to 7.5%.

While capital appreciation has the potential to generate long-term capital gains, investors also need to consider the interest rate risk that they will face during this type of real estate, which may require them to post money to their monthly mortgage payments if interest rates increase.

What is the choice between the two?

Investors who are first-time home buyers or looking to generate cash flow from their homes should prioritize rental-return homes.

Investors looking to invest in multiple homes can combine the two, choosing a few homes with high rental returns and using the extra cash to pay for the expenses of a home with high capital appreciation.

If you have plenty of money, then you can consider capital appreciation homes first.



Finally, what are some high return homes?

Well-appointed community homeownership

Communities with better infrastructure, such as easy access to public transportation, proximity to shopping centers, and dining and entertainment venues to go to on weekends, are more popular with renters than suburban towns with quiet and private surroundings, and have the potential for future property appreciation.

It is important to note that investors should also check at this point whether the home can be rented, as there are some specially planned areas, or community boards that do not allow tenants to move in.

Also, few tenants will spend a lot of effort on the garden of a rental home, so investors should choose a green design with lower maintenance fees.

The sought-after school district housing

As globalization deepens and more and more people choose to study in the U.S., then a house near a school becomes the first option for international students to consider. In addition, many young couples will pay early attention to the schools their children may attend, and both types will be willing to pay 20-30% higher monthly rent for better school resources.

Local Employment

The job market will have a direct impact on the investor's rental income. Generally speaking, an area with many jobs will have a much higher demand for rental housing than an area with a relative lack of jobs.

Housing with more rooms is better than housing with more rooms

Which one is better for investment, a four-bedroom house or a six-bedroom house of equal size?

The obvious choice is a six-bedroom home. A property with more rooms is a better investment because it can earn more rent for the same size.

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