Reasons to Invest
A rental property might be the right investment for you if you are looking for higher yields than you can get with bonds, but also don’t want the risk involved with stocks and mutual funds. One of the best reasons to invest in rental property is that an investment rental property gives a safe investment with high yields even in a poor economy. FamilyLending.ca’s application page is the place to start for those looking to earn steady, wallet-friendly income in the worst economic conditions.
Inflation happens when too much currency is produced, driving down the value of the currency and driving up the prices paid for items. Unlike most investments, rental properties tend to appreciate with inflation. This means that you can either sell them for a better price than you bought them for and use the money to invest in more properties, or you can talk to your mortgage broker about using your rental property to get an equity line of credit that you can use to invest in more properties.
Inflation Is Rent-Friendly
When inflation happens, rents will also tend to rise while the fixed rate mortgage you negotiated with your mortgage broker will remain stable. If you worked to get the best mortgage rate you could when you bought your investment rental property, this means your profits will significantly increase. Moreover, a poor economy means more people will be looking to rent rather than buy a home because their mortgage broker may have advised them that they can’t afford to own a house until the economy improves. It just makes “cents” to be the owner of a property instead of a renter, especially in a down economy.
An investment rental property also allows you to spread out the money you have to invest. For example, if you have $100,000, you can talk to your mortgage broker about using that money as a down payment for multiple properties rather than using it to completely pay for a single property.
The rental yield is the percentage yield from direct rental income, and is calculated either as gross or net yield. Experienced investors tend to calculate the net rental yield, which takes into overhead expenses and divides the property by its value/cost. However, because the net rental yield doesn’t take mortgage payments into account and could otherwise be a negative cash flow, many investors like cash-on-cash rental yields.
Paying Down Loans
Amortization—paying down a loan— frees up more of your investment resources to further increase your leverage. Some investors, when they amortize a loan, use the increased equity they now have from one property to free up even more funds to invest in even more properties.
Property Improvement for Equity
A great number of investors will purposely buy a property at a particular value because the property lacks a specific feature or needs to have some sort of improvements made in terms of the condition or amenities of the property. These investors have determined that the value of the improvements will be greater than the cost of performing the improvements, which would result in an immediate boost in the property’s equity. In contrast, while stocks and bonds are sensitive to inflation and normally involve only appreciation potential and low or non-existent dividends or interest returns, real estate investments allow for multi-faceted investment returns. Remember that creating good value in your home will not only cover the costs of creating that value, but will put money in your pocket down the road.