It could be said for sure that only few investors would ever shell out money on investment real estate unless it provides a favorable rate of return. As a matter of fact placing capital in real property with the expectation of generating a return is the hallmark of real estate investing and it is simply smart for any individual investor to consider all the returns of owning investment real estate.

In this publication, we will have a closer look at the returns an individual investor can expect to receive from both monetary and non monetary sources associated with income producing property as investment.

Let’s start with monetary return.

First and foremost, you need to know that monetary sources of benefits include those that can be directly measured by costs or returns of that component. Speaking differently, how much money can be made by owing the rental property.

• There is income.

Rental income that remains after operating expenses, debt service, and taxes is cash flow that becomes your income. It is obvious that there are factors that might influence the rental income you get over time, for example, the competition in the market, or a change in the market that dramatically alters the market and it leads to a wide disparity between what renters in the past are now willing to pay at this point. In spite of everything just mentioned, in the case your cash-in survives and exceeds your cash-out, it simply means that you have money in your pocket.

• There is appreciation.

This case results in what may be categorized as real or nominal increases in value of the property. It is important for you to understand that nominal increases in value mean a property has increased in absolute dollar terms. As concerning real increases in value, they occur in the case an asset increases in value at a rate that exceeds the appropriate measure of inflation in the economy or market basket that is being used as a measure of buying power. There is also a need to add here that appreciation may be realized through either the sale, other disposition of the asset, or by borrowing against the enlarged value of the asset.

• There is financial leverage.

In fact, this monetary return is associated through use of borrowed funds. Positive leverage results in making money by using borrowed funds that cost less than the return they enable. As a result it results in magnifying the rate of return on investor equity and simultaneously enabling the investor to control a much larger investment than would be possible without borrowed resources.

The other important point that should be discussed is non monetary return.

The point is that non monetary sources of benefits are less obvious but can be measured by personal investment objectives and opportunity costs associated with the particular benefit.

• There is pride of ownership.

You need to take into consideration that direct ownership and control of an investment in real estate enables one the opportunity to control one’s destiny through managing and making one’s own decisions about that investment. You should keep in mind that this may be lacking under a leasehold agreement for commercial real estate.

• There is security.

It goes without saying that the knowledge that an investment is under the investor’s control provides a measure of security. For example, controlling the ownership of land and improvements at a specific location to insure uninterrupted tenure at the same address for a business may be crucial to the survival, growth, and ultimate success of a business. There is the other alternative, as well, and it may be have to do with estate building with the purpose of insuring financial security upon retirement.

• There is diversification.

As concerning this case, it should be pointed out that an investor may buy real estate as an investment for portfolio diversification in order to spread risk by having a diversity of investments among different investment types.

To conclude it all, it is important to add that most real estate investments incorporate tax shelter benefits arising from opportunities to defer tax on income through depreciation and a variety of tax credits.

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