Image Source – Flickr
People get into property investment to make money, right? Sure, there are plenty of people out there who want to charge tenants lower fees than their competitors. But even these morally-guided landlords still want to make a profit. So how can you maximize the money you make from a property investment?
Let’s take a look at some of the ways you can ensure better returns on your investment.
Look for a promising area
A lot of investors don’t quite understand what a promising area means. They often think it means an area with the most expensive property. If they don’t think that, they probably think it means an area with the cheapest property. But these areas aren’t always the most promising area to live in. In fact, they can be the complete opposite! An area with expensive housing isn’t necessarily the most luxurious place to live, for example.
Image Source – Wikipedia
You need to think about the kind of amenities and facilities that surround a particular property. Crime rate is also an important thing to consider. Following this advice will mean you’ll have to spend less convincing people to move there. It also means you’re more likely to have tenants who stay for long amounts of time. This will make the move towards profit much easier.
Commercial real estate is an area a lot of investors don’t consider. They think that the money is all in residential leasing. Well, you should really take into account the fact that commercial real estate can be very cheap. The profit margins can be very impressive if you work with the right business!
Of course, you have to think about the type of lease that’s going to make you the most profit. The type of lease you go for is going to affect how much of the property elements you have to pay for during the tenancy. Having the tenant pay a lump sump in a gross lease may see you make less money, as you have to shoulder a lot of costs. Triple net properties, however, can see a better balance of financial burdens between you and the tenant.
Image Source – Pixabay
Focus on the leverage
Let’s say, like most people who engage in this activity, that you took out a mortgage to fund your endeavor. In this case, you need to get serious about your maths if you want to maximize your profit. (Especially when you consider that you also have to think about the debt you incur!) This is where you have to consider leverage. After all, you’re still going to receive a rental income based on the full property value, even if you put down as low as 20%.
Basically, the bigger your leverage, the better your profit returns are going to be. Let’s say you get a $200,000 property for a $40,000 payment. Sometime later, you sell the property for $240,000. You’ll get the $40,000 plus your principal payments back – and a $40,000 profit. It may be a small amount of profit compared to the total value, but it’s still a tasty profit!