How to Evaluate Return on Investment (ROI) in Real Estate
Investment in Real Estate is considered to be
very profitable and stable in most part of the world. The focus, seem to be on growing economies
such as India, China and Brazil where property prices are expected to be on the
rise. Nevertheless, there are lucrative
investment opportunities even in developed countries, especially Canada. Due to oil deposits, Canadian economy has
survived the economic downturn and is on the path of growth. This is supported by the strong currency and
infrastructure.
While making any sort of investments, the
major factor to take into account obviously is the Return of Investment (ROI).
To know whether it is wise to invest in real estate, you only have to compare
the ROI with other types of investments such as bonds and stocks. While doing so, you may also have to
understand that there are two types of returns – nominal and real. Nominal returns do not factor the inflation
but real returns include the effect of inflation.
This can be understood from this example. While a nominal return of 20% may seem very
attractive, the real return would be only 4% if the inflation rate becomes
16%. Thus, any investment which offers a
real return of 5% is better than 20% nominal return in such a scenario. You may
have to keep this in mind when investing in real estate and should aim for a
ROI of 10% or more which can cover your monthly expenditure on the property. The ideal rate would be 15% so that it can
offset taxes and inflation.
It would help you to make a wise decision if you
compare the ROI in real estate to that of stocks and savings in banks. You may also take into account factors such
as tax advantages, leverage, government regulations and economic conditions
which can impact real estate market in future.
The ROI of Real estate would depend on many
factors including its location, growth prospects in the area, expenses for
developing it and the money available for investment. The purpose of investment in real estate may
also vary for individuals. After taking
all these aspects into consideration, if you find that the ROI in acreages for sale is
more than that of other investment options, you can go ahead.
Since investment in Real estate is a long term
commitment, you need to undertake a good research about available properties
and their future prospects. For this you may have to study the economic,
political and other conditions in the area so that you can make an assessment
of the possible return from the investment after a decade. You may have to look for places with
potential for future growth such as developing neighborhoods of cities such as
Ottawa and Toronto as well as rural land with resources.
If you consider above factor before investing
in Real Estate in Canada, you can be assured of good returns. A great resource to check out when looking for an investment property in vacant land is dignam.com
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