There are few things as basic and necessary to a healthy and stable life than having a place to live. At its most basic we call this need shelter, but for most people, it is your home. But if you know even the first thing about homeownership, then you know that real estate is far more complex than just shelter. In fact, there can be so much confusion around real estate that it can be hard for the average person to wrap their head around. Here are three numbers that you should pay attention to in real estate to stay focused and on target.
Cap Rate
The first number that you should always pay attention to in real estate is the cap rate or capitalization rate of a property. The cap rate of any property is a number that is critically useful if you are purchasing a rental property to serve as an investment. Your cap rate is a percent measurement of what your return on investment is expected to be after your rental income. The standard cap rate for most financially successful rental properties is between 4-10% depending on where you live and the type of units you own.
Property Values
Another crucial number that you should pay attention to in real estate are the property values of your home and the homes around you. As a homeowner, it is your job to improve the property value of your home over time to get the best return on investment. Increasing your home value will increase your equity too. By increasing the value of your home after you live in it, that value is automatically added to your home equity, increasing the amount of ownership you have in the home. Make sure you stay in touch with property value if you own real estate.
Interest Rates
The final numbers that you should pay attention to in real estate are the interest rates. Depending on the current financial situation, the base rate that the government lends money to institutions will change. When this number increases, all consumer interest rates increase, including mortgage rates. Knowing what interest rates look like can help you understand how inflation is impacting the market, as well as how your monthly payments may change at different mortgage rates.
Real estate can be incredibly confusing for the uninitiated. The best way to keep it simple is by focusing on the numbers. Make sure that you are staying in touch with these three metrics in real estate to keep your wits about you.
Check out this article on the common types of properties investors buy!