Every person desires a healthy, stable and safe future income. However, most investments remain unstable and unpredictable mainly due to the economic downturn experienced in almost all major markets of the world. Even though real estate has dealt with a few small threats, it remains a stable investment as compared to other types of investments. . As the population continues to grow, the need for a place to stay and other facilities such as hospitals, schools, hotels, restaurants, and other recreational facilities also continues to grow with great pressure and demand being experienced in the housing sector of most major economies in the world. Real estate investment is very lucrative mainly because it provides various opportunities for investors to generate returns from both monetary and non-monetary sources.
Monetary Returns
Income
The rental income that will remain after deducting debt service, taxes and operating expenses is your income. There are several factors that influence your rental income, including competition and changes in the market. However, if your cash in exceeds your cash out, it means that you will be having cash in your pockets. This guarantees a steady long term source of income for investors.
Appreciation
This is categorized as nominal or real increase in the value of property. The real increase in value occurs when the rate of increase in value of the asset exceeds the measure of inflation in the market basket or the economy. On the other hand, the nominal increase in value is an increase in absolute dollar terms. Appreciation is normally realized through borrowing against the increased value, sale or disposition of the asset.
Financial Leverage
This is the monetary return associated with the use of borrowed funds. Therefore, positive financial leverage is the result of making money as a result of using borrowed funds that normally cost less that the returns they generate. This magnifies the rate of return on the investor’s equity and also enables investors to control larger real estate investments than would be possible without the use of borrowed resources.
Non-Monetary returns
The non-monetary returns are mainly measured according to the opportunity cost and personal investment objectives associated with a particular benefit.
Pride of ownership
Direct control and ownership of real estate property enables an investor to make decisions about the investment and thus control ones destiny. This lacks in other types of investments such as leasehold agreements.
Security
Knowing that the real estate investment is under your control and ownership provides a sense of security. Control of land ownership and its improvements in order to provide uninterrupted tenure is vital to the survival, success and ultimate growth of a business. Moreover, real estate investment can also provide financial security, especially upon retirement.
Diversification
Real estate is a good investment for diversifying your investment portfolio by spreading risk through a diversity of investments in different types of investment.
Tax shelter
The cost of funds can be reduced by the marginal tax rate because interest costs are fully deductible for commercial real estate investment. Depreciation is also deductible and hence you can use it to offset income that would otherwise have been subject to tax.
Therefore, you have a great opportunity to maximize your wealth through acquisition, management and development of real estate property.
John Morgen is a journalist and writer located in Bangkok, Thailand. He writes mostly about business, health, addictions and sports. His hobbies are football and martial arts. He’s also an expert on Myanmar real estate, where he recommends www.scipioservices.com for Myanmar real estate investments.