5 Critical Components of Real Estate Investing Return

Real estate investing is a big piece of my financial pie. The way I think about real estate investing, in the same way, I think about public markets investing…I look at it within the context of our life goals, savings plan, and the hopeful expected return on our investments.

I'm going to give you a breakdown of The 5 Critical Components of Real Estate Investing Returns, so you can ensure the property you're looking at will meet your goals. 

When it comes to my own real estate investment returns, I try my best to forecast the probability of meeting or beating that hopeful public market return of 7-10% CAGR mentioned above. Also, since real estate can take up more of my personal time and effort than public market investing, it makes sense to factor that in as well.

What You Need to Know About the Compound Annual Growth Rate

I want to get a crystal clear picture of whether or not they are making money, and if they're beating that 7-10% CAGR benchmark. I have a method by which I do this in Quicken, which I will eventually share with you in more detail in an online course, but for now, I'll try to keep it concise.

The 5 Critical Components of Real Estate Investing Return

Capital Expenditures (CapEx) & Renovation Cost

The money you spend improving your property that is not part of the usual “expenses and maintenance” of cash flow. In some sense, this is a subcategory of cash flow because it’s potentially “cash out of your pocket” at the time of doing it. But, because it's also voluntary, I don't count it there. I keep it in its own category and track it as such.

Tax Effect

Let's look at some ways you will experience tax benefits. Each year, you can not only deduct any net loss on the property (rent minus expenses), but you can also depreciate the value of your property and add that to your expenses—which often puts your property taking a paper loss—which will result in overall tax savings now.

Swipe Up

to learn more

Read More

Acorns vs Robinhood vs Webull vs M1 Finance: Which One is the Best?

8 Ways to Digitize Your Business