How To Make Money From Real Estate
There are different ways to invest your money in real estate. If you do your investing wisely, you won’t have to put in much effort to make great returns. You must, however, understand that the different ways of investing also have different levels of return, risk and commitment. No investor wants to have a strategy that feels like a full time job. This is why you have to be wise with how you invest your money. Because it is an investment, the money should do most of the work for you.
Let’s take a look at some of the common ways on how you can make money from real estate:
Investing in Long-Term Rental Properties
Long-term rental properties can bring you great returns as long as you are patient. It might require upfront cash but you can earn as much as 20% on returns excluding appreciation, equity pay down or tax benefits. Adding these in could earn you more than 20% on returns.
In order for you to know the cash-on-cash return for your investment, you simply need to determine your annual dollar income and then divide that by the total investment you made on a property. Let’s say you made a 15% down payment on a long-term rental property; you can divide that by the property’s one year income.
Because the returns are higher, many people assume there may be high risks as well. In our opinion, there is risk to everything including our everyday activities so real estate should be no different. However, there are ways on how you can lower the risk:
- Learn your stuff – do your homework, analyze the market and learn from other experts
- Purchase houses below market value
- Invest ONLY in cash flowing properties
- Consider the type of property you are purchasing
Investing in Fix and Flips
Fix and flips – this is a real estate term that means to fix up a property in order to maximize its price for a quick resell. This is probably the most common way to make money in real estate, but there are down sides. You’d have to go through the process of open houses, visits and, not to mention, fixes.
You can DIY your fixes but it’ll cost you more if you don’t do it right in the first place. You also need to consider the time it will take to complete a flip. The best approach would be to hire a contractor. With that added to the mix, this means that you’d have to handle: finding deals, accounting, managing contractors and getting deals closed. Yes, it sounds like a lot of work and it will take time before you close deals.
Investing in REITs
REIT stands for Real Estate Investment Trusts. These can be bought like stocks or mutual funds. REITs are large funds that invest in real estate and they all have a common objective: purchase property and put it to better use. This can be easier for you because the trust decides on what to invest in and they also handle all of the management. However, one important point to remember is that the returns you get will go up and down just like the stock market.
Wholesaling Properties
It seems like we’re learning a lot of real estate terminologies today. The next one is wholesaling properties. Here’s how it works: you, the investor, finds a property that’s below market value. You get the property under contract and then you assign or sell the contract to another interested investor or buyer. This is usually a person who is interested in fix and flips. Whatever the case, you don’t need to fix anything and you get your money liquidated quickly.
Investing in Long-distance Properties
Last but not the least way of earning money through real estate is by investing in a property that’s miles away. There are a lot of people who would like to invest in property but the prices are just way too high in their local market. Investing in long-distance properties may be the answer. In this set up, however, real work needs to be done as you would need to research for the right market, find a good realtor, find a responsible property manager and then find the property itself.
No matter what way you choose, one thing is evident that there is money in real estate. You just have to learn and understand the specifics of each to really maximize the return(s) on your investment. Which form of earning through real estate do you think you are most comfortable doing?