Is Buying Investment Property a Smart thing to Do?

Investing in real estate, people usually expect returns. And those returns usually come to you in two forms regular monthly returns from rent, and long-term returns in the shape of rising property value. These days, it may not really seem like you can hope to see your home rise in value soon. Rise it will one day; but it will probably take a few years. Since that day is probably a way off yet, it won't do to pay much attention to it. So if you're buying investment property, the only place you can look to for any reliable cash flow should be rental income.

Before buying investment property to park your money in, you really have to work out some kind of reliable estimate of the kind of returns you can expect. How else will you ever decide what the most profitable place is to put your money? It can be pretty easy to calculate your investment returns from a property you buy. Unfortunately, people still tend to make serious mistakes. Their mistakes make them go for the wrong kind of property, and everyone loses all around. Let's take a short look into what goes into calculating the income you can expect your investment property to return on a regular basis.

Usually, when you need to compare one thing to another, you are able to make the most meaningful kind of comparison converting everything to the same kind of unit. In calculating your return from an investment, it would really help you make the right choice if you could only express the profitability you expect in every venture as a percentage.

For instance, put money in a CD or something, and it gives you 1.5%. Put it in bonds, and you're likely to get 4%. Put your money in stocks however, you get the highest rate of return 7.5%.

Since buying investment properties is a high risk investment as well, you really should hold the returns you get off property, up against returns you would get against the riskiest kind of financial investment stocks.

For instance, let's say that you are buying investment property for $200,000. You're paying a quarter of this down and you are paying perhaps 4% in closing costs, rehab costs and so on. So you have a mortgage worth $150,000 and you've invested $60,000 of your own cash in the property. If you could get, say, $2000 a month in rent and if you spent $500 a month on general upkeep, you would get $1200 a month in usable income off your property. If you were to subtract your operating costs from this number, you would be left with $700 in all. If you take away the mortgage payment too, you're probably left with $200 clear profit. Basically, you could say that your income stood at 6%.

You'd be surprised how often people just expect to do this kind of simple math before they commit themselves to a house. This certainly makes for a decent return on your investment. And an assured one too

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