Real Estate Investing

The Chartered Financial Analyst (CFA) Institute categorizes real estate as an alternative investment that includes residential and commercial properties as well as mortgage-based securities and real estate investment trusts. For most real estate investors, these investments are characterized as income-generating properties that see revenue from rent earned and capital appreciation from the increase in market value. Since this investment vehicle depends on the net operating income (NOI), maximizing cash flow is key to a successful real estate investment.
To fully understand the importance of cash flow to real estate investment, it is necessary to know that the value of the property is directly linked to the NOI. Unlike residential homes that get their value from comparable sales, income-generating real estate value is calculated as the annual NOI multiplied by an industry standard rate of return, called the capitalization rate. For instance, if the property has an annual NOI of $100,000 and a 10 percent capitalization rate, then the property would be valued at one million dollars. Since NOI is calculated after expenses and both property value and return on investment are depended on NOI, it is important to maximize income and minimize expense. The Stovall Team is a knowledgeable Real Estate Team with expertise in this form of alternative investment. We are happy to makes it easier to identify opportunities for high returns.
As an alternative investment, real estate is historically poorly correlated to the stock market, making it a good investment to diversify a portfolio. During times of stock market loss, real estate continues to offer returns. Real estate is positively correlated to inflation, meaning that it generally increases in value as inflation increases. This makes real estate a good inflation hedge.

Sources: Realty Times, Stovall Team