Real estate is a common method used by many investors to make money. Real estate investments can potentially produce awesome long-term benefits. Apart from that, they also diversify your investment portfolio. Many people have been set on the path to financial freedom by investing in real estate. You can also be one of them.
There are several ways of investing in real estate. Real estate investing can be carried out by stock investments, flipping houses, and anything in between. Here we can explore the guidelines that will assist you in making the right choices when you decide to be a real estate investor.
Ways to Make Money in Real Estate
Here are some common ways people make money in real estate and some useful information about them.
Investment Property
The most common method of making money in real estate is by buying investment property or properties. You can decide to buy a home and look for long-term tenants to rent the house to. You can also decide to invest in a multi-unit rental property or an apartment building. You can also explore the possibility of buying a vacation rental or rental property that you intend to rent over a short period.
You can also buy a commercial property, such as a retail or office building and lease them out for some rental income.
When you decide to purchase an investment property, you increase your chances of making good money, but this method also has drawbacks that you must be familiar with before getting started.
Real Estate Investment Trust
A real estate investment trust, also known as REIT and referred to as reet, is a unique company specializing in investing in real estate assets. REIT can be considered a mutual fund for real estate investment.
Different real estate investors pool their money together and buy a couple of commercial real estate and other properties. Most REITs are traded on the stock exchange, making it easy to buy and sell. It means that REITs are suitable for first-time investors or investors with minimal capital for investment.
Most REITs reimburse consistent dividends, which is a preferred option for investors who want a steady income.
Some REITs specialize in just about any type of real estate, exchange-traded funds, and mutual funds, allowing you to invest in a diversified portfolio of REITs.
Fixing and Flipping Real Estate
Home flipping is buying low and selling high. Sometimes owners are unable to take care of their real estate property due to insufficient funds or time. This may lead to the property falling into a state of disrepair.
Flipping houses is a lucrative form of real estate investing, which involves purchasing a condemned residential property as-is, carrying out the necessary repairs or renovations, and re-selling the real estate property at a profit.
Real estate investors with expertise in flipping and fixing houses will estimate the number of repairs needed. Then they will offer the owner a price below market value and guarantees minimal contract contingencies.
If the offer is accepted, the home flipper will close escrow, carry out the necessary repairs as fast as possible, and re-sell the house to an owner-occupant or an investor who wants the property to bring in rental income.
Wholesaling
In some areas, real estate wholesaling can also be referred to as contract flipping. It can be viewed as a variation of home fixing and flipping.
A real estate wholesaler will act as a middleman between desperate home sellers and real estate investors. The wholesaler will identify cheap property investment opportunities. The wholesaler will get into a contract with the seller to buy the house. Afterward, they will find a real estate investor willing to pay more, and the difference in prices is what is referred to as the wholesaler’s profit margin.
After the deal closes, the wholesaler will be paid, and the new homeowner will carry out the repairs needed and then sell the house or look for a tenant to rent the property and earn a little rental income.
Unlike the rest, this form of real estate investing will require a lot of time, and it has many rules and regulations that should be followed in case you choose this method.
Real Estate Crowdfunding
Real estate crowdfunding is a relatively new form of real estate investing, but it can still guarantee that you will make some money.
When a real estate investor identifies an opportunity to buy or build a commercial real estate asset, they may decide to raise part of the project’s capital from other individual investors. A good example is a situation where a crowdfunding deal aims to acquire a mall, renovate the stalls, and later sell it at a profit.
There are various reputable crowdfunding marketplaces, but the majority of them only deal with accredited investors.
Private Lending
Private or hard money lenders give loans to individuals who can’t qualify to receive financing from financial institutions or who need money to flip or fix a house. Such loans attract high-interest rates and have a short repayment period, so the chances of making good money within a short period are increased.
Such loans are normally very risky, and as a lender, you can take steps to secure your loan, such as ensuring that the borrower has a large amount of equity, collateralizing the loan with other assets owned by the borrower, or taking a piece of the deal.
House Hacking
You can use house hacking if you already own a house and want to get into the real estate rental business to get supplemental income. As the name suggests, part of the house is hacked and used to produce rental income.
Some good examples of good house hacking include renting out an ensuite bedroom or converting an attic or a basement into a studio apartment for renting. For house hacking to be successful, you need to save the extra rental income to make a down payment for a new rental property or pay up the existing mortgage before doing a cash-out refinancing.
Lease to Buy
A rent-to-own is a situation whereby you rent a house for a specific period with an option to buy it before the lease ends. A rent-to-own agreement is normally in two parts: the lease agreement and an option to buy.
The lease agreement is a contract between the renter and the buyer who agrees to rent out the real estate for a particular period -mostly one year.
The option to buy included in a rent-to-own agreement requires the buyer to pay the seller a one-time, normally non-refundable upfront fee known as option fee, money, or consideration. This fee will allow you to buy the house in the future if you want it.
A lease to buy is a good option for potential investors who may not have enough money to make the initial downpayment or a higher credit score to buy the house immediately. It is also considered among the fastest ways of making money in real estate.
Airbnb and Vacation Rentals
If you want to invest in your real estate property but still want remote access to your home, rentals can pave the way for profits and are considered one of the fastest ways to make money in real estate.
Apart from earning your side hustle income, vocational rentals can produce a significant amount of money and create a substantial passive income flow if you are in an area frequently visited by tourists.
There are various ways in which you can promote your short-term rental properties. You can list your home on Airbnb websites or hire a vacation rental company to manage the property and bring in new business.
What to Consider Before Making a Real Estate Investment
Just like any other investment, there are factors you have to consider as an investor before making investments in the real estate industry. They include:
- Risk tolerance: Real estate investment has a certain level of risk, just like any other investment. You will have to be aware of the level of risk associated with each investment. Afterward, you need to make up your mind about the level of risk you can tolerate.
- The real estate market: Some real estate investments will demand that you live near a housing market with enough real estate opportunities. If you do not live in such areas, you may have to rethink your investment and choose one that does not require you to buy real estate property.
- Liquidity: Real estate is not “liquid.” Therefore, when you undergo financial difficulty, you may not be able to sell the property fast within a property value. Some real estate investments may not be suitable for investors with unstable incomes.
Answering the above questions will assist you in making the right decision before investing in the real estate market.
It is better to get expert opinions from parties with experience in dealing with an investment property and can act as property managers, such as investinmultifamily.com.
