The 4 Types of Returns on Investment Properties

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A lot of people ask me to help them understand the benefits of investing in real estate. I want to share some insights into long-term investing, like rental property ownership. There are 4 different types of return on real estate to calculate.

1. Cash flow. This would be different from your gross rents and your monthly expenses. If your expenses like the mortgage payment, taxes, insurance, and management are less than your gross rents, you have positive cash flow.
2. Annual appreciation. If you buy a property for $100,000 and next year it's worth $102,000, we can say it appreciated by $2,000 and that's another return.
   It's important to talk to an expert or a financial advisor.
3. Increase in equity annually. If you get a loan from the bank and it's $100,000, every time you make a mortgage payment, that loan balance is going to be reduced. That reduction represents an increase in equity or net worth that's accrued to you. This is often the biggest one.
4. Tax. This one has to do with your tax accountant so it's important to talk to them first. They will probably depreciate the property over 27.5 years. By depreciating the property, you can get gains on income tax write-offs that you wouldn't have before the property ownership.

One of the benefits of real estate ownership has to do with if you're a growing family. For instance, my wife and I bought real estate so that over the course of 18 to 20 years, we might be able to help pay for our son's college education. It's a great incentive to consider the benefits of real estate investing. But it's not for everyone - there can be management headaches and maintenance issues and things that can be quite speculative. It's important to talk to an expert or a financial advisor to decide if it's a good idea for you and your family.

Please don't hesitate to reach out with any more questions you may have for me!

What Happens After Your Offer Is Accepted in Central PA?

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Selling a home? Click here for a FREE Home Value Report

So you're shopping for homes, you make an offer on the one you want, and the offer is accepted. Now what?

The first thing I want to say is that it's not time to celebrate yet; we still have work to do before we get to close on the home. That can take up to 60 days after the offer is accepted. The first thing we can do is write out our earnest money deposit check. That's the money that we give to the listing agent for the seller, which typically gives them peace of mind knowing they can take their property off the market, because you're a serious buyer.

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It's not time to celebrate yet.

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Secondly, we'll schedule and coordinate our inspections, and attend them. This includes inspections for termites, radon, water, septic, and others depending on the property. After we review, we can decide if there are repairs to negotiate with the seller. The third thing we'll do is make our mortgage application and make sure that the bank appraisal has been ordered, so the bank can review the property, make sure the value is there and review our financial statements. Assuming they approve our loan, we'll get a loan commitment letter.

The fourth thing to do is schedule the final or pre-settlement walkthrough. This is our chance to walk through the property and make sure everything is in order before we settle on the property. Then we'll attend the settlement at the title company of our choice, sign a whole lot of documents, and take the keys to the property.

Then, it's time to celebrate!

Thanks as always for watching. Please reach out to us with any questions you have, whether you're local or not.