5 Critical Drivers of Real Estate Investing Returns

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.

Cash Flow (Cash on Cash)

Cash flow can be positive or negative and is basically the monthly financial net result of your property’s general income (rent received) and expenses.

You collect rents, and out of that you pay the PITI (principal, interest, taxes, insurance) on your loan, then pay any management fees (if you are using property management), then pay any expenses that come up like repairs and/or maintenance—and what’s leftover is your net cash flow.

Principal Paydown (Amortization)

Every month as you cover your PITI, the “P” goes toward paying down your loan principal, so your principle balance is almost always going in the right direction…down.

While this money doesn’t hit your actual bank account until a sale or refi, it is in fact income, to be realized down the road.

Throughout the timeline of a property’s ownership, its value in the open housing market may be going up or down. Like the stock market, the housing market has a long recorded history of performance.


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