Content of the material
- Real Estate Increase in Property Value
- Residential Real Estate: Paths to Profits
- Buy and hold
- Airbnb and vacation rentals
- 4. Become a landlord
- 3. Home-renovation flips
- 6. Go green
- Management fees
- 4. Sell Wholesale
- Discover the REtipster Club
- 12 Ways to Make Money Investing in Real Estate
- 1. Residential Sales and Rental Income
- 2. Commercial Real Estate Sales and Rents
- 3. Real Estate Investment Trusts
- 4. Property Value Increase
- 5. Cleaning Services
- 6. Staging
- 7. Photography
- 8. Foreclosure Specialty
- 9. Property Management Company
- 10. Home Warranties/Inspections
- 11. Factory and Commercial Rehab and Design
- 12.A Combination of These
- 4. Contract Flipping
- 6. Vacation rentals
- 4. Rent a room
- 2. Real estate investment trusts (REITs)
- Bottom Line
Real Estate Increase in Property Value
First, it’s important you understand that property values do not always increase. This lack of asset increase can become painfully evident during periods like the late 1980s and early 1990s, and the years 2007-2009 when the real estate market collapsed. In fact, in many cases, property values rarely beat inflation—the increase in average prices in an economy.
For example, if you own a $500,000 property and inflation is 3%, your property might sell for $515,000 ($500,000 x 1.03%), but you aren't any richer than you were last year. That is, you can still buy the same amount of milk, bread, cheese, oil, gasoline, and other commodities (true, cheese may be down this year and gasoline up, but your standard of living would remain roughly the same). The reason is that the $15,000 gain wasn't real. It was nominal and had no real impact because the increase was due to overall inflation.
Mortgage rates are an interest-related factor that influences property values. To calculate a mortgage, you need a few details about the loan, and you can then use the mortgage calculator below to crunch the numbers.
Residential Real Estate: Paths to Profits
Here is a closer look at some of the many ways that you can earn income from residential properties.
Buy and hold
This is one of the more traditional ways of earning income from real estate. There are a number of ways to accomplish this: You can buy a single-family home and rent it out; buy a multi-family home and live in one of the units while renting the others—ideally to cover the mortgage and your own housing expenses; or purchase a multi-family home and rent all of the units—either managing the property yourself or hiring a management company to handle renting units, collecting rent, addressing needed repairs, and so on.
Property flippers specialize in adding high-return fixes to houses in a short time and then selling them. Flipping can be lucrative if you know how to find properties to fix up, you have the necessary skills to do the renovations yourself or oversee a crew to carry them out, and you have a sense of a property’s underlying costs and potential value.
Airbnb and vacation rentals
The demand for home-away-from-home rentals had taken off in recent years as many travelers preferred this option to staying in a hotel. Homeowners could earn income by renting out a house or even just a room on a short-term basis, especially if the property is in area that's a well-known tourist destination. It's unclear when that market will return. But should it reappear, keep in mind that short-term rentals are regulated and sometimes even banned in certain cities. Check your city's bylaws before listing a property on a website such as Airbnb, VRBO, or HomeAway. And also figure in what additional deep cleaning and sanitizing between guests will add to the costs.
4. Become a landlord
One classic way to invest in real estate is to buy a property and lease it, or part of it. Being a landlord can come in many forms.
The first is to buy a single-family home and rent it out, a strategy that will only generate income if overhead costs are low. If your tenant’s rental payment doesn’t cover the mortgage, insurance, taxes, and maintenance, you’re effectively losing money. Ideally, your monthly mortgage payment will be relatively fixed, while rent prices rise, increasing the amount of money you pocket over time.
Nowadays, you can shop for rental properties online through a site like Roofstock, which allows sellers of vacant homes primed for renters to list their properties, facilitates the buying process, and assigns a property manager to the new buyer.
Another option is “house-hacking,” which is when you purchase a multi-unit building and live in one of the units while renting out the others. This strategy decreases your living expenses while simultaneously generating income that can cover mortgage payments, taxes, and insurance.
A low commitment version of house-hacking is to rent part of your home via a site like Airbnb, which would allow you some extra monthly cash without having to commit to taking on a long-term tenant.
On the opposite, more ambitious end, you could aim for a condo conversion, in which you buy a multifamily building, rent out the units, and then later turn the units into condos and sell them off individually, says Boston-based realtor and real estate investor Dana Bull. “So the idea is, you buy the building for a little bit of a discount, and then eventually you’re able to sell for top dollar,” she says.
3. Home-renovation flips
The fix-and-flip culture has exploded. Thanks to the popularity of home renovation shows, we’re experiencing a massive boom in the traditional renovation flip market. While there can certainly be a lot of money to be made here, navigating these waters in the beginning can be tricky. When you lack the knowledge or the experience, you could find yourself on the losing end if you don’t select the right home.
Matt Larson has flipped more than 2,000 homes in Iowa and Illinois. Over the course of that time, he’s learned some lessons on what to look for and what not to look for when flipping a home with a renovation. His advice? Go after the ugliest homes in the nicest neighborhoods. That’s where the real value is. The other difficulty here is not only finding those homes when you’re not well-networked with real estate agents, but also understanding your after-repair value.
How much will the home be worth once you’ve invested in fixes and repairs? To accurately determine that, you need a strong relationship with a general contractor and an on-site tour of the property. While buying site-unseen at an auction might seem alluring, unless you really know what you’re doing, you could lose money. However, making money on a home-renovation flip can be rather straightforward — as long as you understand the underlying costs and potential value.
John and Julie Wakefield, a husband-and-wife flipping team who’ve done hundreds of flips, say something similar. They advise not to bite off more than you can chew, and more importantly, you should look for creative ways to help others. Success as a real estate investor has as much to do with how creatively you can solve problems as it does how well you can crunch the numbers.
6. Go green
It’s now common knowledge that installing green technology can help us cut our bills and make us feel good about lessening our impact on the environment, but did you know that you can actually make money by doing so too?
The initial outlay to install solar panels, wind generators, ground source heat pumps and the like is quite high (up in the thousands), but it won’t be long before you get that back, as you’ll be able to sell electricity back to the National Grid whenever you have excess energy. This is on top of the fact that you’ll no longer be paying any electricity bills yourself, a saving that can easily run into four figures for larger households.
Unlike vacancy and repairs, this is a discretionary expense. You are not required to hire a property manager, however – somebody will have to manage every property you own (even if it’s YOU), so it’s wise to acknowledge this very real cost.
I like to manage my own properties, so I’m not paying this money out to a third-party property management company – but I have a lot of experience, and I do pay the price in my time.
You must decide for yourself if you want to go it alone or hire a manager. Many property management companies will charge about 10% of the gross rent ($18,000 x 10%) = $1,800.
Let’s deduct another $1,800 from the GSR.
$18,000 – $1,500 – $2,000 – $1,800 = $12,700
4. Sell Wholesale
A fourth way to make money in Real Estate actually can require the investor to have cash, although it is not required.
This technique is by far the best and easiest way for new, inexperienced investors to make “quick” money in Real Estate. In fact, this is by far the best and easiest way for veteran and seasoned investors to make “quick” money in Real Estate.
Wholesaling is the art, and I use that word on purpose, of being able to accurately appraise the potential value of a property and buy it so low, you can quickly sell it for cash to another rehabber or end user who will make it their dream home, without EVER fixing a thing, regardless of how good or poor the condition of the property.
Now, you may say, I do not need cash for this strategy. I can simply Option the property for a wholesale price and then sell it to a rehabber or end-user. You are absolutely correct, but getting an owner to accept a wholesale price is rare.
You will make 100 wholesale offers to owners before one is accepted.
Where you will have much better luck is buying foreclosures from banks.
While a majority of your initial offers will still be rejected by banks, they are much more likely to accept a wholesale offer. They also will never allow you to Option the property. They only accept cash and will even require you to have Proof of Funds before they even look at your offer.
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12 Ways to Make Money Investing in Real Estate
This is a fact. Smart people who do their research will make money in real estate.
Real estate investing takes many forms:
1. Residential Sales and Rental Income
You can buy properties such as condos and homes and become the landlord who leases them to generate income. Long term residential rentals can become a substantial passive income stream.
Or you can buy properties that are in need of repair, do the repairs, and resell them. This is often called Flipping.
The term Flipping implies that the transaction is a quick, easy task, but that’s often not the case. Whether you’re going to lease or resell a property, pad in extra time because renovations almost always take longer than expected. And are more expensive than expected.
2. Commercial Real Estate Sales and Rents
Don’t overlook the commercial side as a money-making rental property. Post-pandemic, many towns and cities are faced with a glut of empty commercial properties, from a closed restaurant or office complex to a factory or warehouse.
Similar to a residential property, these commercial spaces can be retrofitted to fit today’s market and you can begin to collect a monthly rent for each tenant.
For example, you can subdivide a large space into a number of smaller spaces and generate rental income from the small spaces. This type of venture lends itself to creative financing, such as real estate crowdfunding platforms. Entrepreneurs and other investors may back such a venture.
3. Real Estate Investment Trusts
Trusts are often set up to manage financial investments, but real estate investment trusts handle property – residential, commercial, or a combination. The real estate investment trust can be part of an investment portfolio, also regulated by the guidelines of the securities and exchange commission. Or it can be set up by a real estate investment group.
You’ll need an attorney who specializes in the field. As a property or properties are added to a trust, a new deed is created to reflect the new “owner” (the name of the trust). You will need a trustee who is responsible for property distribution if that become necessary.
An attorney or a certified financial planner well-versed in this field can investigate whether or not a real estate investor trust is a good investment strategy and the best way to structure your investment properties.
4. Property Value Increase
This is a Flip on a delay. For example, relying on research, you analyze how much an incoming new business will impact a local real estate market. If 700 jobs are to be created from a new industry, it stands to reason that those employees will need housing. The new business is slated to open in two years. You buy a property or property, planning to rent it or let it sit until the demand for housing increases. When the time is right, you sell at a profit.
5. Cleaning Services
It’s a relatively unknown niche in the house cleaning industry – houses that are new construction need to be cleaned, especially if the interior has been dry-walled. The dry wall seams must be taped and spackled, then sanded until smooth enough for painting. The dust from the sanding must be vacuumed and wiped clean before the builder’s punch list – finishing trim, painting, installing floors – can be completed.
Landlords may also need this service for properties that are in-between tenants.
A staging company uses a set of household goods such as furniture and accents (wall art, bedding, area rugs, etc.) to give a house a welcoming look. The company delivers and removes the items needed for staging.
This can be a face-paced business, as realtors ask for quick staging before an open house, for example. Staging is most often used to prep a house for a successful open house.
See Also: Shopify Has Real-Time Reporting for Your Online Store
We’ve all seen the images used to help sell a house. Showcasing a property with good photos takes a lot of time. Increasingly, realtors like to use drone footage to show the location of a real estate property.
8. Foreclosure Specialty
When a company becomes owned by a bank or other hard money lenders, it often becomes listed with a real estate company. But the foreclosed property may be cluttered with items the previous owners have left behind. It may also be dirty.
There are a couple ways you can make money by working with foreclosures:
You can become the management agency that cleans it up, readies it for sale, and keeps the grounds mowed or plowed until it sells.
You can be the person who buys a foreclosure as an investment property, to either rent or sell. There are investors whose entire real estate portfolio of rental real estate is comprised of foreclosure properties.
Typically, each real estate company will have one or two agents who handle foreclosures. This can be a slippery slope, as foreclosures may be complicated by liens on the property for back taxes or utility non-payments. You’ll want a good title search.
9. Property Management Company
A company can handle indoor or outdoor chores, or both. Duties can range from tenant screenings (credit and criminal record checks) to serious property maintenance (electrical, plumbing), and even rental income collected. Or a property manager can handle mowing, snow removal and other outdoor maintenance.
10. Home Warranties/Inspections
This is a great option for a retired contractor. Often property values are based on inspections, which detail things such as the type of electrical service, age of roof and windows, condition of foundation and more.
11. Factory and Commercial Rehab and Design
Many empty factories and other commercial buildings could thrive if retrofitted to be more up to date. Once you know your local market, you may be able to identify a need and fill it.
For example, such properties can become “incubators” or “hubs” for businesses which benefit by grouping. For example, an empty shoe factory can be sectioned to hold a couple restaurants, small commercial ventures and day care.
12.A Combination of These
A key to successful real estate investing is diversification. For example, you can combine staging and photography (and charge separately for each!). You can buy rental real estate from foreclosure stock. You can buy and prep the property with furniture and necessary household basics and use it for short term rentals or vacation rentals, such as the Air BnB or VRBO.
4. Contract Flipping
One way that you can make money from real estate without having to put up very much capital or credit is to flip contracts. All you have to do is find a distressed seller and a motivated buyer, then bring them together.
While locating a distressed seller might seem difficult, Clothier has systemized the entire process for doing this. The trick with contract flipping is to identify the distressed seller and locate a ready-to-go buyer.
To do this, you have to be able to identify either vacant homes or homes that are behind on their mortgages. That’s the tricky part. You’re effectively trying to find distressed sellers, but homes that are already vacant are primed for an opportunity like this.
6. Vacation rentals
Vacation rentals can present a lucrative path to profits in the real estate marketplace. Not only can you make some side hustle income from vacation rentals, but you could potentially make a significant amount of money and build up a substantial passive income stream if you’re in a highly-trafficked tourist locale. Places like Los Angles, Miami and other tourist hotbeds are well known for having high demand for these short-term rentals.
I’ve long been a firm believer in the vacation rental market. The best part? You don’t even need to own the properties to make money. Some of the world’s most successful property management companies that specialize in vacation rentals don’t actually own the homes but do provide a high-end consumer experience.
How do you participate? Leverage existing relationships with owners in your area. Network with others. Build bonds. Create systems. Ensure the upmost satisfaction. Go above and beyond for anyone staying at the homes you manage. And see how you can help to take some of the time and stress off of the present owners’ existing rental businesses. If you have a property, list it on a site like Airbnb, HomeAway or FlipKey before managing vacation rentals for other owners.
4. Rent a room
Let’s face it, the cost of living these days is putting pressure on a lot of people. Wages have been stagnant for a while, yet everything else continues to rise unabated. Renting out spare rooms, therefore, is becoming an increasingly popular option.
While it may not be to everyone’s taste, taking in a lodger can bring in a handsome amount of cash. Plus, if you sign up to the Rent A Room scheme, you are currently allowed to keep the first £7,500 each year without paying any tax. Not bad!
2. Real estate investment trusts (REITs)
If you want to wade into real estate, investing in a real estate investment trust (REIT) will provide exposure to the market without the time and cost commitment of buying your own property.
REITs are companies that own, operate, or finance properties and real estate ventures. Like mutual funds or exchange-traded funds, they own not just one, but a basket of assets. Investors purchase shares of a REIT and earn a proportionate share of the income produced by those assets.
Equity REITs, the most common type of REIT, allow investors to pool their money to fund the purchase, development, and management of real estate properties. A REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls. Ninety percent of its annual earnings must be distributed to the investors as dividends.
One big selling point of REITs: Most of them trade on public stock exchanges. So that means REITs combine the opportunity to own, and profit from, real estate with the ease and liquidity of investing in stocks.
Geared towards generating income, usually from rent and leases, REITs offer regular returns and high dividends. They also appeal to investors because of the unique way that they are taxed: REITs are structured as pass-through entities, meaning they don’t pay corporate tax. This effectively means higher returns for their investors.
If you want to keep your investment liquid, stick to publicly traded REITs (a few REITs are private ventures). You can buy shares through a brokerage firm, IRA, or 401(k).
Having cash is not necessary to make money in Real Estate investing, but it does make the process easier.
As you advance in your career, you will want to find a way to acquire some cash, whether it be from private money lenders or banks.
The transactions are cleaner and with experience, your confidence to properly manage a deal and the money at risk will increase. But for now, make a mess with as little risk as possible and keep the faith that there is a check at the end of the tunnel.
For me, the first check I earned was small, but it gave me the confidence to keep going. It was nice to see the bigger checks follow suit. I promise, they were not easy to come by, but with the proper training, hard work, and a little luck, it can easily be your name on these checks.
Let me show you how to get there.