After the great real estate bubble burst in 2008, plunging the economy into crisis, people were cautious of real estate investments.
Property prices fell 12.4% year-over-year for the first time since 1979. However, by 2017 the market started gaining momentum again. In 2017, prices increased by 11.4%, showing public’s renewed confidence.
Despite the ups and downs and the chaos in the market, real estate has always been an attractive investment due to its numerous benefits.
The best part about real estate investing is that you start receiving income as soon as you invest.
Moreover, the value of the investment generally increases over the long term.
One of the other perks of investing in real estate is that it protects you against inflation as property prices and rents usually increase with inflation. In 2018, inflation rose by 2.4% year-on-year, while housing prices climbed 8.8% – the biggest surge in four years.
After technology, real estate has produced the second largest group of self-made Forbes 400 members.
These include billionaires such as Sheldon Solow, who rents his luxury tower to tenants. The list also includes a self-made real estate tycoon Jeff Sutton, who leases his retail space to big brands such as Dolce & Gabbana and American Girl.
Given the benefits, there is no doubt that you can make some real bucks by investing in real estate. Here are some sure-fire ways you can earn money by real estate investing:
How to Make Money from Real Estate Investing
1. Rental income
Even though the great crash of 2008 is a distant past, housing ownership remains low because people believe that renting is more affordable.
According to a survey, 76% of millennials preferred renting over owning.
According to David Brickman, executive vice president and head of Freddie Mac Multifamily, “We talk virtually every day about how renting is becoming less and less affordable. I think the answer is just that housing is becoming less and less affordable and renting is the more affordable of the two.”
This spells good news for existing and potential landlords. However, before investing in a place, there is one crucial thing that you should keep in mind, and that is location.
A good site makes it easier to find tenants, making the rental income more stable. Plus, it increases the value of the asset at a faster rate.
If you want to increase returns on rentals, then you can take leverage.
For example, if you invest 20% in a rental, you will still receive rental income for 100% of your property. So, if you charge $750 in rent for a property worth $100,000 and pay a mortgage of $500, you will get a profit of $250 on $20,000.
This makes a return of 15%, which is higher than other investments.
While rental income is an easy way to earn money from real estate investing, it also comes with a lot of hassle of dealing with tenants and property maintenance.
Moreover, income can be unstable at times because you may not find a tenant. So, if you don’t want to get into such hassles, you can consider flipping houses.
Flipping means that you purchase real estate for the sole purpose of reselling. Often people buy fixer-uppers and after doing the required work, sell these houses at a profit.
However, to be successful in the flipping business, you need to have a thorough knowledge of the market. The only way you will know a property is a real deal if you know the market value of the other homes in the area.
To make money from flipping, you need to buy the property at a great discount.
Look for distress deals in the market; when people need money on an urgent basis, they usually sell their assets at a discount.
Such deals allow you to make sufficient profit that covers the cost of property renovations as well.
The crucial thing to remember when procuring property for flipping is the repairs needed. It is highly likely that you are not the only flipper in the market. Hence, when you find a good deal, you must be prepared to move quickly.
You must know what kind of repairs are needed and how much it will cost. If the cost of repairs and the purchase price exceeds the value of the home, you will end up losing money no matter how good the deal was.
Don’t have enough cash on hand to flip? You can always consider approaching hard money lenders.
You should opt for a hard money loan instead of a traditional loan because they are faster and short term. Also, with hard money lenders, the value of the collateral is more important than the credit history of the borrower.
3. Lease Options
Lease option or a rent-to-own is a clever way to earn money from real estate investing.
While it may sound a bit complicated, it is not. A lease option is simply an agreement between a buyer and a seller involving a lease with a monthly rental amount due along with the option to buy at a predetermined price at any time during the time period of the contract.
The seller is obligated to sell the property, but a buyer is not obligated to buy the property.
Also, any rental amount that the tenant-buyer pays over the term is credited back in case the tenant-buyer decides to exercise the right to buy.
You might be wondering the point of keeping the property on hold like that. However, if the property appreciates 15 to 20% over the next 1 to 2 years, then you can sell the property to someone else at a higher price without ever owning the property.
Lease options are not only favorable for buyers, but for sellers as well, especially in a slow market. If you want to sell your property and there are a lot of sellers nearby, and you cannot drop the prices, you can lease option to someone for 1 to 2 years.
In case the buyer doesn’t exercise the right to purchase, you will get the non-refundable rental amount, and in case the buyer decides to buy then you will get the full asking price.
Real estate investing can be quite lucrative if you can manage it properly. However, your choice should depend upon your market knowledge and access to finances.
In case, you are new to the game, you can consider hiring a real estate agent to help you out with the process.
About The Author
Ashley Rosa from Longhorn Investments is a freelance writer and blogger. As writing is her passion that why she loves to write articles related to the latest trends in technology and sometimes on health-tech as well. She is crazy about chocolates.