If you are trying to find a way to make money you may think of the stock market or high interest savings accounts as a place to invest your money in order to get a good return. However, real estate is another option to think about. Is it a good investment?
In the US, most houses increase in value by approximately five per cent a year. Of course, this can vary depending on the geographical location and also the economy so that one year you may not see an increase at all and the next it may leap in value by up to 25 per cent for example. However, research shows that on average over the past decade, house prices have increased by ten per cent a year. The amount of profit on this is actually lower than you could make on the stock market and so those looking for a fast way to earn millions may well be put off this type of investment. However, if you look at the figures involved you can see it is actually a much better investment than you first thought.
If you are looking to buy a house that is on sale at $200,000 you are likely to require a mortgage in order to secure the sale. For this example, lets say you have a $40,000 deposit in cash to place against the property. This is the amount of money you could have invested in the stock market. In one years time your house will have increased in value by five per cent, meaning its value will have increased to $210,000. This gives you a profit of $10,000 in a year. This level of return is possible through wise investment in other fields but when you consider that you have made $10,000 profit on your initial investment of $40,000 that five per cent increase becomes a 25 per cent increase. This is an excellent level of return on your investment that would be difficult to achieve elsewhere. In addition to this, you always have a level of security with real estate as you have actually purchased something tangible and this will continue to be yours, whereas there is always a high level of risk associated with stocks and shares.
Of course, of you have purchased a home with a mortgage, as per the previous example, you will be making monthly repayments. If you have purchased the property as somewhere for you yourself to live you were probably renting prior to this. When renting you are simply throwing money down the drain so you can be satisfied that your mortgage payments are contributing directly to your ownership of the property. This will allow you to make even more money off your investment in future years should you choose to sell as you will own a greater proportion of the house outright.
If you bought the property as a buy-to-let investment you will need to be sure that the amount of rent you will make from your tenants will cover your mortgage costs. In addition to this, you will need to have funds available to enable any repairs that are required to be completed quickly in order to ensure that you are not in breach of your rental agreement. If you are considering buying a property in order to rent it out I highly recommend you seek professional advice before committing yourself so that you can be sure that it will not end up costing you more per month than it is making you. |
