By Alice Dunn | Bricksave
October 28, 2024
News > Blog Article > Why you should look beyond rental …
When it comes to real estate investment, rental returns often steal the spotlight. And rightly so — after all, the higher the rental yield, the more money you can expect to earn each month. But as the old saying goes, “Not everything that glitters is gold.” Rental income is just one piece of the puzzle, and savvy investors know that there’s more to the story—especially when you look at long-term gains.
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One key player in this equation? Appreciation.
Appreciation can often feel like the unsung hero of real estate investing. While rental returns provide a consistent and predictable stream of income throughout the investment, appreciation represents the potential for significant profit when the property is sold. It's the gradual increase in the property's market value over time, and in some cases, it can vastly outperform the returns you collect from rent.
Unlike rental income, which is generally steady but capped, appreciation can lead to exponential growth depending on market conditions. If you hold onto a property in an up-and-coming area, the value of your asset could rise far beyond your initial expectations. Investors who focus only on short-term gains from rental income may miss out on the larger, long-term payoff that appreciation offers.
With the recent interest rate cut by the Federal Reserve, the real estate market is poised for a significant shift. As interest rates fall, mortgage borrowing becomes cheaper, increasing demand for properties. This surge in demand drives up property prices, offering investors an opportunity for strong capital appreciation. By entering the market now, real estate crowdfunding investors can acquire high-potential assets at more favourable prices before market competition intensifies.
Several factors influence how much a property appreciates, including:
In fact, Bricksave’s involvement in the U.S. real estate market has made a notable impact on property values in cities like Chicago, Detroit, and Miami. These areas have seen substantial appreciation thanks to revitalization efforts, economic improvements, and strategic property management.
For example, markets like Detroit — which have undergone revitalization — can experience considerable spikes in property values. Cities with increasing demand, economic growth, and infrastructure improvements tend to be hotspots for appreciation. When combined with rental returns, appreciation can significantly elevate your overall return on investment, making it one of the most critical factors for investors to consider.
One shining example of this comes from a property funded through Bricksave at 11054 Engleside Street, Detroit.
While the rental returns were solid, the real magic came from appreciation. Thanks to improvements in the local market and property value growth, the annualised return of the investment climbed to 15.47%, surpassing the projected return of 13.34%. This increase in property value significantly elevated the overall return on investment, showing that appreciation is a powerful force for investors who are look beyond rental returns.
The relationship between interest rates and real estate is fundamental. As the Federal Reserve lowers interest rates, borrowing becomes cheaper, making it easier for homebuyers and traditional investors to secure mortgages. This increase in purchasing power leads to greater demand for properties, driving up prices.
For real estate crowdfunding investors, however, the key advantage is that you’re not dependent on mortgage financing. Crowdfunding enables investors to pool resources and buy properties outright for cash. This ability to act quickly in a competitive market allows crowdfunding investors to secure deals at more favourable prices before the flood of traditional buyers, who face delays and hurdles due to financing requirements.
As mortgage rates drop and demand for homes rises, property values are likely to increase. This presents a rare opportunity for real estate crowdfunding investors to capitalise on market shifts and lock in properties before prices climb further. With property values expected to appreciate in the wake of the interest rate cut, early investors stand to benefit from capital appreciation over the next several years. Crowdfunding makes it easier to access higher-value properties that may otherwise be out of reach for individual investors, amplifying the potential for returns.
In recent years, high interest rates have squeezed rental yields as traditional investors faced higher financing costs. But with lower borrowing costs on the horizon, rental demand is expected to rise, especially as some potential buyers are priced out of ownership due to increasing property values. For crowdfunding investors, this combination of capital appreciation and stronger rental yields makes the timing particularly advantageous.
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While it’s tempting to focus on rental returns when evaluating an investment, you should always consider the potential for appreciation—especially in a changing interest rate environment. Rental income is great for short-term cash flow, but appreciation can dramatically boost your long-term gains. With the Federal Reserve’s rate cut imminent, real estate crowdfunding investors are in a unique position to act quickly, securing properties before market competition intensifies and prices rise.
By leveraging platforms like Bricksave, you can seize this moment to invest in high-potential properties in key markets. Don’t miss out on this window of opportunity—invest now and position yourself for strong returns in the years to come.
Investing carries risks, including loss of capital and illiquidity. Please read our Risk Warning before investing.
