It’s easy to feel overwhelmed with all the different real estate investing jargon out there. As a beginner, you’ll often encounter terms that will pretty much make your head spin, and even prevent you from starting your investment journey.
So, to help remove some of the confusion from investing, the team here at RestRealty has rounded up the most common real estate investing terms to get you up to speed and boost your confidence.
After all, investing isn’t just for the pros. So, if you’re looking to make your first real estate investment, then these are #RestEdition terms that will get you better equipped to reach your financial goals.
#RestEdition Real Estate Investing Definitions:
1. Return On Investment (ROI)
Return On Investment (ROI) is one of the most important factors to consider when making a real estate investment as it helps you evaluate whether property investment is profitable or not.
ROI is calculated by taking the net income, which is the gain on the investment subtracted from the cost of the investment, and then dividing it by the cost of investment. Make sure to factor in all costs involved with the total capital investment cost, such as loan terms, interest rates, service charges, maintenance costs, and so on. Ultimately, the higher the ROI, the better the profit earned.
ROI = Net Income (Gain – Cost Of Investment) / Cost Of Investment
Simple ROI Calculation: If you invested $200,000 in property and sold it after 5 years for $250,000, then your ROI would be:
($250,000 – $200,000) / $200,000 = 0.25 = 25%
2. Purchase Cost
Purchase Costs are the additional costs associated with the initial investment amount. In Dubai, this could be the Dubai Land Department (DLD) Fee of 4%, Brokerage Fee of 2.1%, Trustee Fee, DEWA and Chiller Deposit, DIFC NOC Fee, Renovation/Refurbishment Cost, SPV Registration, and other adjustments. But in Nigeria, Locations at times could be the determinant factor to the other miscellaneous costs.
3. Dividends
Dividends, or recurring rental income, are the company’s way of distributing earnings to their shareholders. Dividends are distributed proportionately to the investment you make. So, if you invest in 10% of a property, then you’ll receive 10% of the total rental income generated.
At REST, dividends are sent out on a monthly basis, which you can either withdraw to your bank account or re-invest into a different property on our platform.
4. Gross yield
Gross yield is the total rental return you receive from the tenant of a property before expenses are taken into account. To work out the gross yield, just sum up the total yearly rent that you’d charge a tenant, without deducting any fees, then divide that number by the property purchase price.
For example, if you’re charging your tenant an annual total of $85,000 and the property value is $800,000, then your gross yield is 10.625%. However, this value does not reflect the annual returns you would receive from your investment.
5. Net yield
Net yield is the total income generated after deducting all the costs and operating expenses involved, so this is what ends up in your pocket. On the REST platform, this is what we refer to as the ‘dividend yield’.
When you purchase a residential property, as the owner, you’re obliged to pay the ongoing costs of maintaining and operating the property. These costs take into account things like property insurance, service charges, property management fees, upkeep costs, and so on.
We will continue from here in our next blogpost. Trust you go value?
10 Real Estate Investing Terms Every Beginner Should Know (Part 2) – ChrestOvest Limited
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