Earnings on real estate: ways of income from real estate
If you’re looking to diversify your investment portfolio, add another source of income, or both, real estate can be a viable choice for growing your money.
People may be oblivious to investing in real estate because they assume they will need to raise a significant amount of cash up front to get started, or they don’t have enough knowledge on the subject.
K Fortunately, there are various ways to invest in real estate, depending on your level of experience and current finances.
This article presents seven different strategies to consider.
Why invest in real estate?
Real estate is a worthy investment because it tends to appreciate over time.
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When you invest in real estate, you save your money and let grow in the future.
This refers to the structure – be it a house, apartment building, or commercial property – but even more so to the land on which it sits.
Some reasons why real estate can be appreciated:
Inflation – house prices tend to rise with inflation.
Development-when the area continues to develop over time, for example if other housing estates, schools, airport or shopping centers are built nearby, this will increase the value of the entire area.
Demand – more demand leads to more value. If over time more and more people want to buy property in a given community, the value of property in that community will rise.
Demand may increase as the community becomes more developed and therefore more desirable, or simply as the population increases.
7 ways to make money in real estate
If the information above has piqued your interest in real estate investing, here’s a closer look at how you can make it:
1. Rent out a spare room
If you’re interested in investing in real estate but need to start small, you can get your feet wet by renting a spare room in your home. The Internet has made it very easy for such transactions. Sites like Airbnb allow you to advertise your room so that interested parties can easily view and book it. Facebook or Instagram you can also post such information on social networking sites like Facebook or Instagram.
Renting rooms is a good way to get started because there is little investment. It’s also much more flexible. You set the price per night, as well as availability. You can rent a room to a tenant for a month or maybe just for a weekend. If you decide you no longer want to rent it out, you can simply remove the listing from any sites that hosted it.
It’s worth noting that if you’re going to be renting to strangers from websites like Airbnb, you may have to do some of the renter selection process yourself. Before you agree to book a tenant, be sure to do your due diligence. Check their profile on the website and look at past host reviews and ratings to get an idea of what type of renter they are. You must also contact them directly, which can usually be done through the listing platform.
2. Long term rental
Another great property investment option is to buy and hold a property. In this case, the investor buys real estate with the aim of resale as soon as its value increases significantly. In the meantime, the investor can rent out the property for additional income. When buying property for resale, especially if you plan to rent it out, remember that location is everything.
Location usually dictates property value, so you will want to invest in areas with higher property values. Investment prices will be higher, but so will the returns. Narrow down the area you want to invest in and do your research on each one. Find out if there are older, more run-down homes that you can buy for a lower price and then fix it up.
For this kind of investment, it’s most likely in your best interest to hire a local real estate agent who is good at knows the market. Not only will they be well versed in real estate, but they will also know how to negotiate after seeing a home to try and get the final sale price down. The less you invest in a house, the more you will get back.
3. Vacation Rentals
Leisure property is somewhere between renting rooms and buying and holding property. This is a property that you buy and own directly, but is considered a short-term lease because the lease term that the tenant can book is usually 30 days or less. This is usually a solid source of income because vacation spots—coastal cities like Miami and San Diego, or ski towns like Aspen—are valuable all year round.
As is the case For any type of real estate investment, vacation rentals do have their share of setbacks to be wary of. The better your property performs in terms of booking, the more money and effort you will have to invest in managing it – making sure the appliances are up-to-date and working well, fixing any wear and tear, etc. If you are a full-time employee and own holiday rentals as a second source of income, property management can take too long.
4. Fixing and flipping houses
The fix and flip strategy in real estate investment focuses on buying houses at a lower price and then refurbishing them to resell at a profit. In this case, you are simply remodeling an old house to increase its value and attract buyers.
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This strategy is best for those with more experience in real estate investing as it can be quite risky and requires a strong knowledge of the renovation process. Each fix and flip of an object requires its own repair budget. Your purchasing decisions will be made based on your ability to evaluate the various renovation costs associated with a given property to ensure it is within your allocated budget. However, unforeseen costs often arise during the reconstruction process. For example, you might tear down walls and find mold, a load-bearing beam that needs to be replaced, or old wiring that needs to be redone. Such unexpected expenses can cause you to exceed your budget and eat up your profits.
5. Try Online Real Estate Platforms
Online real estate investment platforms work by connecting investors with people who are looking for funding for their income-generating real estate projects. Investors connect online, pool funds and invest in commercial or residential real estate in exchange for profits. This type of organization is also known as real estate crowdfunding.
Investors using online real estate platforms expect to earn a return on their investment on a monthly or quarterly basis, depending on the agreement. The downside to using online real estate platforms is that you may have to get approved as an accredited investor before you can invest. In other words, to qualify for the investment, you must have earned at least $200,000 in annual income in the past two years or have a net worth of at least $1 million (either as an individual or combined with your spouse’s net worth).
If you don’t meet these requirements, there are certain platforms open to uncredited investors such as RealtyMogul, Fundrise and Groundfloor.
6 . Real Estate Investment Trusts (REITs)
Real estate investment trusts, or REITs, work by pooling investors together to raise funds that can be used to purchase or finance income-producing properties. REITs are companies that own multiple properties such as commercial buildings, residential complexes, or hotel buildings. Buying shares from these companies allows you to enter the real estate investment market without actually owning the property.
REITs are attractive to investors for several reasons: 1. Since you do not own the property you are investing in, you are free from liability for its content. 2. REITs usually pay more than other investments. This is because companies must cash out 90% of their taxable income and distribute it to their investors through dividends. 3.When you invest in a REIT, you can reinvest your REIT income back, which further increases your investment (and income).
Wishing investors can buy REIT shares at major brokerage firms or go for a non-tradable REIT . If you are relatively new to the concept, it may be better to stick with publicly traded REITs because they are much more liquid and easier to sell compared to non-traded REITs.
If you are considering investing in real estate through a REIT, you may required to submit a significant amount of money. Some companies offering REITs may require a minimum investment of $1,000 to $25.00.
7. Invest in commercial real estate
Commercial real estate is a great strategy for people looking to invest in larger projects such as:
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- office buildings,
- shopping malls,
retail stores,
- salons,
- medical facilities,
- hotels, etc. for income generating reasons.
With commercial real estate, you generally make money from renting your tenants.
The amount will be agreed in advance, usually based on dollars per square foot of rented space. You can then collect the payment monthly or annually.
One of the disadvantages of investing in commercial real estate is that it can lead to huge gains. As developers build properties, this helps to increase the value of the entire area. If the lease is coming to an end, having a developed space opens up the possibility for others to rent that space at a higher price.
The disadvantages of investing in commercial real estate are that it is costly and involves many tedious steps, such as securing license and zoning documents.
Useful tips to remember when investing in real estate
Remains hope this article has opened your eyes to the different ways to invest in real estate. Before you do, be sure to keep these three practical tips in mind:
1. Working with a Professional
Real estate can be a complex process, especially if you’re just starting out. To avoid costly mistakes, appoint the help of professionals.
Whether you are buying or selling property, you should work with a real estate agent to help you find the best deals, close them and assess the risks.
Working hand in hand with an expert in the field can be extremely educational.
By continuing to expand your portfolio, you will be able to use your knowledge and maximize profits in the future.
2. Research the market
Before making any buying decisions, research the market you want to buy in. Check out current trends – what comparable properties have been selling over the past few years, average rental prices, seasonal inflows, etc.
In addition to the market, you should also familiarize yourself with the area, in particular which can affect the value of the property. What is the school system like? Are there any interesting new projects in development? What is the level of employment of the population? Crime rate?
The information you get from your homework will help you negotiate when you’re ready to buy, and again when you’re ready to rent or sell.
3. Location
Again, location is everything about real estate. When you’re looking to buy or invest in property, try to consider the following:
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- Is the area in or near a good school district, malls, parks, and other recreational areas?
Is there a revitalization plan for this region?
- Is the population growing and are development plans possible?
Use these questions as a checklist. Properties in areas marked with all of these flags are more likely to appreciate in value over time and are worth investing in.
Closing words
There is definitely money in real estate, and there are different ways to make it, depending on your comfort level and finances. Start small and work your way up.
Enlist the help of professionals and do your best to learn as much as you can from them. Like everything else, the more you do it, the better you get.
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