Mar 5, 2023
Buying Property? 4 Ways to Maximize Returns from Your Real Estate Investment
Investing in real estate is an excellent way of generating consistent returns and even building generational wealth. Whether single or multi-family units, buying turnkey properties always yields a significant return on investment (ROI) if done well.
Even better, since the property is a multi-dimensional class investment, there is more than one way to generate consistent returns from them. In this post, you'll discover four ways to get consistent income from a real estate investment.
Cash Flow
Cash flow is the best way to make money from property investment and the number one reason people invest in real estate. Cash flow refers to money generated from property investments that can provide a consistent income.
To calculate cash flow, subtract the net income for a given turnkey property from the expenses associated with the property, such as:
- Mortgages
- Property taxes
- Insurance
- Property manager costs
- Repairs
A positive cash flow signifies a surplus or profit, whereas a negative cash flow shows deficits. When a property has positive cash flow, it helps maximize all other ways to make returns on property investment.
Appreciation
The value of a property can increase or decrease drastically depending on prevailing market conditions. When a property's value appreciates at a similar rate to inflation over time, it undergoes passive appreciation, lowering the loan-to-value of mortgage debt.
Other than that, a property can also increase in value through forced appreciation. In this type of appreciation, an owner raises the value of their property by making improvements that allow them to reduce expenses and sell or rent the property at a higher price.
For example, installing bathroom cabinets and repairing drainage systems might increase the value of a home and reduce overhead maintenance costs.
Mortgage Pay Down
Buying a rental property often requires funding in the form of amortized loans. With this loan type, you can use a portion of the rental income generated from the property to pay down the loan's principal and interest.
Over time, the mortgage costs reduce and your equity in the property increases by simply paying down the loan using rental income instead of regular income, which saves you money.
For example, if you take an $80,000, thirty-year mortgage with a 5% annual interest rate after paying the 20% down payment for a turnkey property, income from a tenant can potentially pay down $1,176 of the loan annually.
Tax Breaks
Just like owning a business, investing in turnkey property gives access to various tax deductions and breaks. The first tax break is the real estate depreciation offered by the IRS, where you can deduct the amount derived from dividing the value of property by the useful life of the property as determined by the IRS.
On top of that, you can deduct expenses that go towards property repairs, hiring property management. You can also file zero capital gains using an 1031 exchange to defer taxes from the sale of a property or use travel tax deductions such as traveling to real estate education classes or the property market where you own property.
Browse Our Turnkey Property Inventory
Ultimately, investing in turnkey properties can increase your cash-on-cash return in various ways. You can make money from cash generated from rental income or the sale of property, or you can make improvements that increase the value and reduce the costs of your property.
You can also pay down your mortgage using tenant income and take advantage of various tax breaks afforded to property owners in the U.S. Combining them increases the chances of maximizing your returns on investment. Visit our website for more information on turnkey property investment or to check out our property inventory.