– Continuation from the previous part. Click here, to read the other part.

6. Cash Flow

Cash flow refers to the net amount of cash you pocket every month from a property after covering all the operating costs. It is the net difference between money coming and going out from your asset, so cash flow can be either positive or negative.

When your income is more than your expenses, then your investment is profitable and maintains a positive cash flow. But if your expenses are more than your income, it is termed negative cash flow — and that’s not good for investment.

To calculate a property’s cash flow, you would need to find out how much rent it generates each month, known as the gross operating income (GOI). After deducting all the expenses associated with running the property(mortgage payments, maintenance costs, repairs, etc.), you’ll reach your net operating income (NOI).

So, if your property generates $2,000/month in rent but costs $2,200/month to maintain and operate, then its NOI would be -$200/month ($2,000 – $2,200 = -200), indicating a negative cash flow – not good. 

If the NOI is positive, where you generate more rental income than expenses, then your rental property has positive cash flow.

7. Capital Appreciation (gains)

Appreciation refers to an increase in the value of property over a period of time. Factors like a highly favorable location, increased demand, limited supply, inflation, and so on, can influence the capital appreciation of properties.

For example, property prices are likely to appreciate in areas where there are various upcoming commercial developments. Additionally, properties with many nearby amenities and attractive views are also likely to witness a higher appreciation rate than others.

8. Diversification

Diversification is the process of spreading capital across many different assets, otherwise known as not putting your eggs in one basket! It is considered essential in building a solid investment portfolio, as it helps reduce your overall risk.

You can diversify both across different asset classes and within specific asset classes. In fact, real estate is a great asset class if you’re looking to diversify within an asset class, as you can spread your funds across multiple properties, reducing your risk.

9. Holiday home

Holiday homes, or short-term rentals, describe furnished apartments that are rented for short periods of time, typically on a monthly basis, as opposed to annual apartment rentals. They are seen as an alternative to hotels because they’re cheaper, allow more privacy, and offer greater flexibility, all while being close to all the major hotspots.

Holiday homes are a particularly great option to invest in a place like Dubai, as there’s been a rising demand for short-term rentals in the city, especially with Dubai leaving its mark as the ultimate tourist city. Not to mention, the Qatar World Cup is just around the corner, so now’s the perfect chance to consider investing in Dubai holiday homes with REST.NG as you can even charge a premium as demand soars.

10. Long-term Rental

Long-term rentals are usually rented out to tenants for more than six months on average, though this figure can range from 30 days to one year. Long-term rentals can be furnished or unfurnished, and are suitable for tenants looking to base themselves in an area for an extended period of time.

Long-term rental can be a successful investment strategy, as it’s an efficient way to produce consistent, positive cash flow, offering a more reliable stream of income than its short-term rental counterpart. Nevertheless, it’s always a good idea to spread your risk and invest in both long-term rentals for reliability, and short-term rentals for the strong demand and higher potential yields.

In A Nutshell

And there you have it! These were our top 10 real estate investing terms you should know before starting your journey towards financial freedom.

Got any more terms that need clarifying, or tough codes you want us to crack? Then feel free to shoot us a message or email, and we’ll make sure to get all that covered for you.

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Disclaimer: This blog is intended solely for educational purposes and shouldn’t be treated as financial advice. We suggest you always conduct thorough research, perform your own due diligence and consult with financial advisors to assess any real estate property against your own financial goals.