There are five things to consider in property investment, it is income, depreciation, equity build-up, appreciation and leverage. Now let us pay attention one by one.

1. Income means the income which produces from renting or leasing the property. The simple way of the counting is like this, percentage of rental value per year and at what year next the investment fund get break event point. For example the value of the property is amount $50,000 and rented $5,000 per year, so the property investment value will get break event point at year tenth.

2. Depreciation is allocating cost for the property asset in the way of accountant becomes one of the budget aspects. Usually many companies do this where putting depreciation cost as company cost, meanwhile the property asset still have economy value. In real life the property asset value like building and land becomes higher as the development grows up around the property asset.

3. Equity build up is share value owned over one property by investor who takes loan from the bank and has done amortization from main fund. It is not easy to explain this but the example is like this, consider an investor buy a property valued $100,000 with bank loan amount $80,000 and the investor has paid down payment amount $20,000 from the investor pocket. After amortizing in some period of time, the bank loan value is $70,000 left. With the assumption that market doesn’t raise up yet, so the investor gets equity build up valued amount $10,000.

4. Appreciation is an increasing value of the property value. What I mean here is the capital gain. For example if the property bought last year amount $100,000, and this year the property value becomes $130,000, means there has been an appreciation amount $30,000. This is the main reason why more people do property investment.

5. Leverage is the usage of loan fund to increase the property investment gain. This term needs deeper and wide and in detail explanation because it is according the case, because not many investors could get leverage from the bank or third parties. It needs studying in detail before giving the loan.

All this term I get when reading a book. And I think it is just a basic thing to know when we decide to jump into property investment business. I am opened for any comments, and if you have any suggestion or book to read please fill the comment.

Source: book of Budi Santoso

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