Mark Ferguson wrote at the end of last year, “Investing in real estate is a fantastic way to retire early or increase your income. There are many ways to invest in real estate, but personally, I think long-term rental properties are the best real estate investment. Long-term rental properties take little management, give great returns and produce cash flow for years and years into the future. Flipping, wholesaling and most types of real estate investing are more like a job than investing; take more time, more money and once you stop working, you stop making money. Rental properties have provided me with over 20 percent cash on cash returns and that does not even factor into account equity pay down and appreciation.” I would say those are decent returns.
“Decent return” is a subjective term. It should be a positive return after taxes and inflation and most important, it should compensate you for the risk you take. Since real estate is illiquid, your return on investment (ROI) should be higher than stocks, bonds, CDs. ROI for some includes appreciation. For a good rental property in the Washington DC area, we prefer cash-on-cash return as the most important calculation for real estate investors. This approach looks at every dollar invested and determines the percentage yield return on an equity cash investment. This leads us to “cash flow” where the cash inflows during a period are higher than the cash outflows during the same period.
Positive cash flow is a return on your equity investment, call it yield if you want, and that cash flow can be used for living expenses, more investments, or paying down debt. That’s how some get rich in real estate. They reinvest the cash flow into more real estate and it has the effect of compounding. Imagine if you could compound at 12% a year. In six years you would have doubled your investment.
In today’s interest environment the connection between risk and return has been severed. Not so in real estate. You can still be compensated, as you should be, for being illiquid when you buy rental property in Washington DC area.
Trusted Homebuyers is here to help stressed homeowners, help first time home buyers find their dream home, and help Investors find income producing property. It is a way for us to give back and grow our community. As investors, we are in business to make a modest profit on any deal. However, we can also help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. Just the simple honest truth about your home and how we can help you sell it fast to resolve any situation.
Trusted because buying your home is guaranteed