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Things To Know When You Invest In Real Estate

Investing in real estate is about buying, managing and selling or renting real estate at a profit. Improving real estate as part of a real estate investment strategy is usually viewed as a sub-specialty of real estate investing known as real estate development.

Potential buyers have found the city attractive because of its many job opportunities. Dealing with the best investment real estate agent is a fact of life when purchasing real estate for investments.

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There are three elements of return associated with investment property. They are:

1. Cash Flow

The formula for cash flow is rental income minus operating expenses. Operating expenses include mortgage payments, property taxes, insurance, utilities, upgrades, and repairs. 

Usually, investors who require significant cash flow will significantly decrease their profit in the other three elements of return.

2. Equity Growth by Amortization

This occurs as the principle is deducted from your mortgage loan balance. Typically, mortgage payments are the same each month and are paid by the rental income. 

These payments usually cover both principal and interest. As you make payments, you pay off the principal which increases your equity.

3. Equity Growth by Value Appreciation

When properties increase in value, you gain equity. There are two kinds of appreciation: (1) inflationary and (2) demand. 

Inflationary appreciation is the increase in property value due to the reduced purchasing power of the dollar. Demand appreciation is the increase in property value due to the limited supply of property.