The two things which make up total returns in property
“Hello and welcome back to daily buying tips, I’m Dean Berman from Berman Buys.
Today we’re going to talk about the two things which make up total returns in property.
When you invest in pretty much any asset class, there are usually two ways you can make money.
This is the same in property.
The first is through cash flow or income.
In property this is called rental returns.
In business this is usually called revenue, income or sales.
It’s pretty much all the same.
When you build a portfolio you can treat it like a business and your revenue is your rent received from your tenant.
The scarcer and more desirable the property you own in the rental market, will generally increase your returns.
The second is called capital growth.
In business this is the appreciation of the company as determined by the start of the years valuation and end of the years valuation.
Once again all pretty much the same outcome.
To understand how much the asset is worth.
Changes in a properties value is the result of changes in demand and supply.
To much demand and too little supply, prices increase, and vice versa.
Re-zoning, renovation, subdivision, extensions etc…can increase capital growth in property.
So too can increased population, more jobs, more amenities such as new cafes, shops and high demand schools to name a few.
Like in business you want to increase your income and valuation of your asset.
In turn increasing your total returns which is rental income + capital growth.
If you experience a 4% rental yield and 5% capital growth.
You will have experienced 9% total returns for that particular year of ownership.
The reason why property has been so successful for investors is the compounding affect caused by the leveraged asset.
Hopefully you can see there’s more than just one way you generate returns with property.”