You can make money in several different ways, such as capital appreciation, renting, and equity buildup, by investing in real estate. As an agent (and as a test taker), you need to be familiar with all the moneymaking methods and the appropriate terminology. In this section, I cover the basics.
The most important thing to keep in mind when it comes to making money on investments is that an investor expects these two kinds of returns:
^ Return of the investment: You expect to get back your capital, the cash you invested in the first place.
^ Return on the investment: You expect to receive something more than what you invested. The expected return on the investment is related to the risk of the investment. The risk in any investment is the possibility of losing all or part of your original cash investment. The higher the risk, the greater the expected return on the investment.
The several ways by which investors expect to accomplish the return of their investments and the return on their investments are covered in the following sections.
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