3 Ways To Maximize Your ROI When Buying Property Investment
Property Investment is one of the oldest forms of wealth accumulation and must always be part of a larger investment portfolio to balance your risk. However, unlike other paper securities, the financial value of a house or in that case other investment properties are not much different.
Indeed, it can increase slightly over time or decrease slightly during a property slump, but this is marginal. That is why banks from time to time create various types of loans for real estate as opposed to other forms of property and this is a mortgage. This series of articles will highlight for you three ways to make more money and maximize your return on investment (ROI) when buying your property.
The first method for you to increase your ROI is to use leverage from banks. When you buy with your own money and then use bank money to pay for the rest of the property, your return on investment will be the total cash flow minus the interest paid to the bank and this will beat buying property using only your own money. So in other words, your return on investment will increase because you are actually using less money to make more profit and this is the basis of the concept of financial leverage in real estate investing.
A separate turnaround on this idea is that you always divide your initial capital into lots and buy several properties at the same time and generate cash flow from your property investment. Note that when doing this, always pay attention to which part of the property cycle you are buying. If you buy property during the boom boom period, it is possible that your cash flow calculation may not apply during the economic downturn, so always take a more conservative view of your cash flow calculation.
In conclusion, using financial leverage from a mortgage can be used as a way to increase your return on investment. However, a mortgage is a complex instrument and the best way for you to get the best deal is to find a mortgage broker who can then do the calculation and determine the best mortgage for your particular property investment. Remember it’s not how much you make dirty from your rental property, but how much you get after taxes and payment of interest is the key to making money from property investment. This is a three-part series and we will continue in the next article on how to buy property cheaply and increase your property investment ROI.