What Return on Investment should I expect from Real Estate?
The summary from our online financial calculator is what your ROI (return on investment)
is for each dollar you are putting into the investment from your pocket. What
ROI should you aim for? To begin with, you will obviously want to earn
more than your bank interest rate. However, all ROI have a risk associated
with them. Therefore 10% ROI at the bank is not equivalent to 10% ROI
from a real estate investments. The reason for this is risk adds uncertainty
and volatility to your return.
What this means is the higher the risk, the
less the chance you will get the ROI you calculate. It is a gamble. Consider
the many risks associated with renting a home out. There is the risk
of not finding a tenant, the risk of getting a bad tenant, the risk
of getting sued, property damage risks, property value appreciation risks.
The reality is there are many many risks with REI (Real Estate Investing),
while there are almost no risks with money in the bank. Furthuremore there
is significant work with being a landlord as well. One has to include
the value of your personal time into the whole equation to make sure
your ROI is enough to give you a higher salary than minimum wage at least!
So what ROI should you aim for? Personally I would not touch anything yielding
less than 10-15% ROI, unless you are doing it for the experience
and have nothing better to dowith your time.
You will at least learn about risk, liability, landlordship,
taxes, and people (i.e tenants). Such experience is invaluable in
your development as a businessperson, investor and entrepreneur.
For those with some experience and time , one should aim for 15-20% ROI's.
Ideally the best ROI's are 20+% as you will be able to double your investment
almost every three to four years. In less than a decade you could amass
quite a large fortune which will continue to grow. The more money you have,
the more you will earn. 10% of 100,000 is 10k per year, but 10% of
1,000,000 is 100k per year which is ten times what you would earn if you
only had 100,000 invested.
How to find and select good tenants?
The ideal tenant is one who will stay a long time, take better care of the house than
you would and pays the rent on time. Finding all three of these qualities in one tenant
is highly unlikely! You will however, find two of these three qualities quite easily. To
be able to find the ideal tenant you will need to increase the number of prospective
tenants who come to see your place. You accomplish this by advertising a lower than
market-value rent. An ideal tenant paying less than market value rent is ten times better
than a bad tenant paying more than market value. The old adage in real estate is No
tenant is better than a a bad tenant is very sage advice!
So advertise a lower price and you will find a lot more tenants to choose from. Once you
narrrow it done make sure and check their credit and references. If all looks ok, then you
should be on to a successful real estate investing experience.