esidential investment income, or you may sell the
property has gained immense property at market value
popularity over the past (provided the property has
decade. Owing to the increase in experienced appreciation) and
demand for rental accommodation, invest elsewhere.
and the resulting rise in rental
income, more investors are likely In general, there are two primary
to dive in the residential sources of income from any
property business. However, not residential investment property:
all residential properties are yield and capital gain.
profitable investments, and some
investors might lose money if Yield is the expected annual
they don’t choose with rental return, which is expressed
discretion. as a percentage of the purchase
price. For instance, if the
When you set out to purchase a purchase price of a property is
residential investment property, $100,000 and its expected annual
your key intent should be to rental return is $8,000, yield is
leverage, in order to cut down on said to be 8%. The yield, in
personal costs, and to acquire an combination with the terms of the
income generating asset. mortgage, determines the personal
Typically, you should invest in a expense on the part of the
property whose rental income will investor, in order to acquire the
cover its entire mortgage and property.
operating expenses. Such a
property is said to be Capital gain is the appreciation
“self-funding”. Once the mortgage in value of a property. Or in
is repaid you have two options – other words, the profit accrued
you may continue to reap the from selling an asset. It is
benefits of a steady rental expressed as growth rate in
percent on an annual basis. It is recommended that your
Capital gains are generally expected returns from a
estimated from the movements in residential investment property
average property prices. be based on a comprehensive
analysis of current trends and
It is wise to analyze both the market conditions. It isn’t
capital gain and yield potential advisable to rely on intuitions
when selecting a residential when scads of money are involved.
investment property. The typical
problem faced by you as an On the whole, a residential
investor would be that high investment property is a viable
yielding properties normally investment option if the returns
offer low capital gains, and vice meet your expectations, and
versa. You should strike a exceed those attainable from
balance between yield and capital other possible sources of
gain, such that it best suits investment.
your investment goals. What
constitutes the right balance Copyright © 2006 Joel Teo. All
depends on your expected capital rights reserved.
gain and yield.
About the Author:
Joel Teo writes on Ahwatukee Real Estate Investment. Learn more about Property Investment by signing up for his free Real Estate Investing Ezine
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Joel Teo
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