Do you want to use real estate to make money? There are so many people who are already involved in this, so why not you? Investing in this industry can be a good thing and profitable, but you should realize that doing so is different from other investments you will make. The returns you get can be divided into three main components.
Upon evaluating the three investment return components I realized that these are actually three ways that could help you in making money. I will describe them but before I do, I want to advise you to be cautious when you put in money into real estate. Many people lose money when investing in real estate because they do not thoroughly research the market or fail in minimizing the risks involved.
With that being said, here are the three components:
Value Appreciation
Why do people buy properties? Because as time progresses, the value increases and they can make more return. Studies claim that if you consider shorter time periods that comprise of just 5 to 6 years, you will probably lose money rather than increase it. However, when you expand the time periods, chances of earning a better return also improve. For instance, your property will pay off quite impressively in 25 years and hardly any at all in five years.
What is the point that I am trying to make here? That you should hold onto your properties for at least 20 years or more if you want to get significant returns.
Cash Flows
Many a times real estate investors fail to analyze a deal thoroughly. Before you conduct a deal, you should evaluate all cash flows and make sure the resulting cash flow is positive. Buying properties with positive cash flows ensures that your investment will prove to be valuable in the long run. In simpler terms this means that the money you earn must be greater than the amounts you spend on the property,
Tax Benefits
Tax benefits do not really let you earn money, but if you take advantage of them, you will be paying reduced amounts to the IRS.
Of all the above methods, the second is the most important because it provides you with direct cash whereas the others do not.
Source: www.realestate.aol.com
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