How Real Estate Investments Return Profits

Lean how real estate investments can increase the value of your portfolio

When you purchase a company's stock certificates, you're looking for appreciation in the stock value, and perhaps dividend income if the company pays it. With bonds, you're looking for income yield on the interest rate paid by the bonds. With a real estate investments, there are more ways in which to realize a superior return on investment. Learn the ways in which your real estate investment can increase in value, as well as provide good cash flow.

1
Cash Flow from Rental Income

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As is the case with a stock that pays dividends, a properly selected and managed rental property can provide a steady income stream in the form of rental payments. Rental property returns typically exceed dividend yields.

Real estate investors have more control over risks to their cash flow. Though there are slumps in real estate prices and slow markets, people who own residential investment property usually lease it for many years, without experiencing corresponding decreases in rent amounts.

2
Increases in Value Due to Appreciation

Historically, real estate has shown to be an excellent source of profit through the increase in investment property value over time. Of course, analysts cannot always predict real estate trends, which vary significantly across the United States.

3
Improving Your Investment Property - More Value at Sale

While it is providing cash flow, you can also improve your investment property to earn more profit should you choose to liquidate it. Upgrades to the appearance and functionality of an investment property can significantly increase its value. As trends and styles change, keeping the property interesting to renters can help you retain its value.

For a maximum return on investment, make note of improvements that actually increase a property's value. Installing energy efficient appliances and windows increases a property's value, as does adding a bathroom and remodeling a room. Insulating a property also increases its value.

4
Inflation is Your Friend When it Comes to Rent

Though your fixed mortgage payment will remain constant, inflation drives up home construction costs as well as rents. Population growth also creates housing demand and drives up rental prices when supply cannot keep pace.

5
Making Use of Equity

The equity in your investment property will increase as you pay down your mortgage. Though equity is usually determined when you sell a property, some real estate investors take out equity loans when interest rates and loan terms are favorable and use those funds for other real estate investment projects.

6
Find that "Steal of a Deal"

Finding a value-priced property is the most effective way to increase your net worth. Such deals aren't easy to come by, and savvy investors do their homework, browsing property listings frequently, to take advantage of opportunities when they arise. 

Investors who wish to increase the value of their portfolio with real estate should also ensure that they have their financial ducks in a row. Good credit scores are a must, as is having the cash savings for the required downpayment -- usually 20 percent for investment loans.