top of page
  • AREHoldingsGroup

Better Yields and Cash Flow

Updated: Oct 16, 2019

Better Yields and Cash-flow

Whereas most investment vehicles only provide profit in one way, Real Estate investors enjoy the unique benefit of having four ways to profit from their investments. They include Tax Benefits, Appreciation, Principal Pay down and Cash-flow. This post reviews yield ,the percentage of profit an investment returns, and cash-flow, the amount of that profit that is left for you to enjoy after all expenses are paid.

What percentage of return can I get from stocks?

Annual returns for the stock market may be double digit one year while providing negative returns the next. Due to this volatility you have to consider longer time periods to calculate a true average rate of return. Financial research firm DALBAR ‘s 23rd annual report showed that for the period ending December 30, 2016 the S&P 500’s average annualized rate of return was 7.68% for 20 years and 10.16% for 30 years while the returns for mutual funds were around half this value. The three and 5 year annualized rate of return were 8.87% and 14.66% respectively. Simple stock investing’s website lists the average return of the S&P 500 from 1950 – 2009, almost 60 years, as 7%. This reinforces the fact that the stock market may offer unpredictable annual returns but over time the average rate of return is around 10 - 11%, 7% when adjusted for inflation. You must also keep your money invested for long periods of time to achieve this level of return.

What percentage of return can I get from real estate?

Real estate investors enjoy double digit returns often 2-3 times that of other investment vehicles. The average returns are location specific and further dependent on the class of real estate. Due to the multiple ways income is earned (Tax Benefits, Appreciation, Principal Pay down and Cash-flow) and the hundreds of neighborhoods available for investment it is harder to pinpoint a blanket average return. A better technique is to find a neighborhood or market that provides the returns you are looking for with the caveat that higher returns usually carry more risk. One way to estimate this return is the cap rate for the neighborhood. Cap rate is the ratio of income produced to purchase price of the property. The higher the cap rate the higher the income a property produces. To illustrate the location specific nature of returns, lists the cap rate of Cleveland, Ohio as 11.5% while Cincinnati, Ohio has a 9.8% cap rate. Keep in mind these numbers don’t factor in appreciation, principal pay-down or tax benefits. The beauty here is that you can calculate your projected returns before investing and depending on your financing the percentage of return may be much higher than market cap rates.

How much cash-flow can I get from stocks?

Stocks can be purchased as growth stocks that do not pay dividends but experience above average appreciation or as value stocks which may or may not appreciate but will pay reliable dividends. These dividends are the closest thing to “cash flow” in the stock market. You may increase your cash-flow by buying more of these value stocks or by waiting for the companies to increase the dividends they pay out. As listed by the S&P 500’s annual dividend yields from 1900- present have averaged from 1.8 – 5.9% on a decade basis with an overall downward trend. As of the writing of this article the S&P 500’s dividend yield sits at 1.9%. Interestingly enough, lists a real estate investment trust (REITs), Realty Income, as the ”…‘gold standard’ in safety and longevity within the monthly dividend stock universe.” and notes REITs have twice the dividend payout of the S&P 500. In fact almost half, 4/10, of the top ten monthly dividend payers for 2018 were REITs. Fortunately you can invest directly in real estate and get even better cash-flow

How much cash-flow can I get from real estate?

Cash flow in real estate is made from investing in income producing real estate such as renting out residential, retail, commercial or office space. The profits made from the rent after paying all expenses produces your monthly cash-flow; you also have tax benefits that help you to hold onto more of this cash-flow. Stocks are great as they allow you to be hands off; the down side of this is you have less control. In real estate you have more control over your cash-flow because of the numerous investment factors involved. You negotiate the purchase price, you choose the tenants, you choose the market, you set the rental price, you source the contractors for maintenance/ repairs, all factors that can directly increase your profit and affect your cash-flow. If that sounds like a lot of work, fortunately there is a way for you to be hands off and still enjoy the benefits of real estate investment.

At ARE Holdings Group we sponsor and manage syndications that allow passive investors to have access to real estate investment opportunities with high cash flow. Each investor gets a transparent inside look at how we adjust each investment related factor to maximize profits. From there he or she may decide if the investment opportunity is right for them. You get the hands on profits with the hands off benefits!

If you are ready to invest in real estate or would like more information please visit the ARE Holdings Group contact page or text “Why Real Estate?” to (516)-519-3869 so we can match you with the investment opportunity that best meets your needs.

bottom of page