Making an investment in residential property can be profitable if it is done right. But many people infrequently confuse themselves and end up taking a beating in the market because they do not know whether or not they are investing for rental yield or capital growth.
In The United Kingdom, where this sort of investing is commonly known as buy to let, many of us made losses in the big property bull market up until 2007 because they believed that property prices would just keep on rising and that they wouldn't fall.
So instead of scrupulously considering each potential property investment on its advantages, most of them just purchased any old thing in the hopes that it'd be worth a lot more one or two years later on.
The initial step to prevent this basic mistake is to take a look at the rental yield that you might earn from the property. The net rental yield is a measure in which you subtract annual costs such as insurance and agents costs from the once a year lease that you plan to get from the property. You then divide that by the cost of the property. If the net yield is lower than your cost of capital (in most situations that'll be your mortgage interest rate) then the investment makes almost no sense.
What's more, this calculation lets you compare the possible return you could earn on a yearly bases against other possible investments like stocks or shares. In recent years smart speculators have managed to pick up stocks in great companies on dividend yields that are far better than what they might hope to get from property.
Now some people may argue this figure does not take into account the fact that the value of the property may go up. My reply is easy. The worth may go down too. There aren't any guarantees in investing, but at least being certain that your property investment can make enough money to cover its own costs puts you in a much safer position than if you were just betting on a market recovery.
You'll be able to find out more about Buy to Let by visiting my site.It has articles on every aspect of property investing and a favored beginners guide to buy to let.
