How Money Is Made Through Real Estate
Real estate agents aren’t the only professionals making money in real estate. There are other ways to make real estate income, such as with monies from rental properties or by providing property management.
There is a lot of money to be made in real estate — which is why it’s popular with a variety of investors. Whether you are trying to build passive income or kick off a full-time investing career, there are numerous ways to find success.
And for the everyday individual, it may be more accessible than you think. Although it requires considerable time, patience, and (of course) cash, almost anyone can invest in real estate.
Here I will be telling us How to make money in real estate
1. Increasing Property Value
The most common way to make money in real estate is through appreciation. Appreciation is when a property grows in value.
You might purchase a property for #1,000,000, and over the course of 10 years, it appreciates to a value of #500,000,000. Sell the property, and you’ll have profited #400,000,000.
Most properties tend to appreciate, and that’s why real estate is such a popular industry for investors. There’s an excellent chance that your property will eventually be worth more than what you bought it for.
Let’s talk about land first. “Land” is any property that has few or no existing structures. Land tends to appreciate for two reasons:
Development: Land may appreciate if you construct a house or commercial building. Or you could refurbish structures that are already on the land.
Natural Resources: If you discover gold or oil on your land, it will almost certainly skyrocket in value. You can also sell land rights to companies that wish to harvest resources off your land typically, you can earn a percentage of whichever resources are collected.
Residential and commercial properties appreciate for three main reasons:
Development: A property will appreciate if the surrounding neighborhood sees new developments or redevelopment.
Improvements: A property may appreciate if significant building improvements are made. This is the main idea behind fix-and-flip investing.
Location: This is the main reason residential properties appreciate. Properties are more likely to grow in value if they are located in schools, commercial centers, or popular destinations.
2. 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.
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, which would allow you some extra monthly cash without having to commit to taking on a long-term tenant.
3. 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. The trick with contract flipping is to identify the distressed seller and locate a ready-to-go buyer.
By bringing these parties together, you’ve cut out the need to go hunting for a buyer after you’ve entered a contract. That situation presents more risk. Instead, by locating the sellers and the buyers beforehand, you can easily enter into a contract with the confidence that you won’t get stuck having to close escrow on the property.
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.
You’ll earn a one-time profit when you sell an appreciated property. But many real estate investors use their investment properties to generate a steady cash flow. You can generate regular income through residential properties, commercial properties, and raw land.
When you own a residential property, you can rent out to tenants and collect monthly rent. You need to collect enough rent to cover the property costs, like mortgage payments, utilities, and property taxes and you might even be able to collect a little extra that you can pocket.
Similarly, you can rent out commercial properties to businesses. With commercial properties, you could make additional money by offering your tenants contractual obligations. “First right of refusal” is a popular one: when a business rents out space on your property, they can pay you to grant them a first-option on an office space that opens up next door. This is a helpful contract for growing businesses, and it’s a good way for you to avoid prolonged vacancies.