There are many ways to invest in and profit from real estate. I've divided them into 4 main categories. There are many other categories too, however, for most investors that have portfolios of under 10 investment properties, we can safely say that these are the 4 types of real estate investment gains they can take advantage of.
Positive cash flow This refers to cash that comes into your pocket, after you, the owner/investor, have paid off liabilities pertaining to that property. For example, when you purchase a property and your cost of carrying that property is $1800 per month (mortgage payments, property taxes, property management, etc.), and you rent it out for $2000 per month to a tenant, you are cash flowing at $200 per month.
Principal recapture This refers to you getting back what you put into the initial investment. For example, if you purchase a $500K property with a 20% down payment ($100K) then your initial investment into that property is $100K. As your tenants are paying off your mortgage, and as you are collecting cash flow, and as the property value increases, your gained equity, principal payoff, etc. begins to 'recapture' your initial 100K investment.
Market appreciation This refers to the market that swells due to increased demand and a controlled amount of supply. In Toronto and the GTA in recent years, market appreciation is generally one of the most aggressive and reliable ways to profit from real estate.
Forced appreciation This refers to the owner/investor doing capital improvements (such as upgrading the bathrooms and kitchen, or adding a basement apartment) to force up the value of the home.
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