Real estate investment vocabulary
Every successful real estate investor was once a beginner. The investment world can seem overwhelming with its specific jargon. But don’t worry! We at FLUM GLOBALE INVESTMENTS are here to solve the puzzle. In this blog post, we will explain some basic terms and concepts in real estate investing.
Part 1: The basics
1. return on equity:
The return on equity is an important key figure if you are interested in and decide to finance a property for rental. It indicates how high the profit on the equity capital employed is. A good return on equity is more than 20%.
2. cash flow:
The real estate cash flow compares income and expenses (including taxes and maintenance costs). If income exceeds expenditure, this is referred to as a positive cash flow. However, if expenses are higher than income, this is referred to as negative cash flow.
3. gross rental yield:
The gross rental yield puts the rental income in relation to the purchase price. This is a value that is often considered at the beginning when interested in a property, due to the ease of calculation. However, it is not meaningful enough for a final decision, for which the net rental yield is then calculated.
4. net rental yield:
The net rental yield takes into account not only the gross rent and the purchase price, but also all ancillary costs that the landlord cannot pass on to the tenant. These costs may include Land transfer tax, fees for notary and estate agent, administration costs, loss of rent in the event of vacancy, costs for renovations, etc.
5. increase in value:
Real estate appreciation refers to the increase in the market value of a property over time. The potential for high increases in value is particularly present in emerging markets and up-and-coming vacation regions. A positive increase in value can have a major leverage effect on your invested equity. There are various cases where the increase in value exceeds the net rental yield.
Invest with FLUM GLOBALE INVESTMENTS and we will help you master the ABCs of real estate investment! Stay tuned for Part 2 of our real estate investing vocabulary series, where we’ll explain more important terms and concepts.
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