Real estate has always had a strong return as an asset class over a period of at least 10 years, but a 20-to-25-year strategy is likely to be much more rewarding. The price an investor pays for a property makes the biggest difference in returns. The profits that investors can earn from rising house prices are greatly enhanced if they borrow as much money as they can to finance a purchase. However, to be rewarded, timing plays a very important role. An investor who accurately timed the housing price cycle and always invested in the fastest growing areas would have twice the average return of someone who invested in the slowest growing areas.
In addition, reinvesting rental income in the buy-to-let portfolio significantly increases returns. The most successful homeowners have a balanced geographic area, so they can take advantage of the current high site yields as well as the long-term increase in ascending site performance. Small differences over a period of one to two years, which could result from the behaviour of an investment in different areas, can show large fluctuations in the long-term returns of a generation.
Landlords also seek to have a mix of property types – i.e., they aim for homes aimed at young professionals as well as properties that are more suitable for families and of course can receive added value from a renovation or extension. This is due to the fact that with the end of a renovation, the investor has increased the rental value and the value of the property, while improving the value of the loan of a mortgaged property. Leveraging value in this way gives owners more control over being at the mercy of the market.
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