How to make money in real estate investing

1. Real estate crowdfunding

Real estate crowdfunding is a strategy that allows enterprises to raise capital from large groups of individuals. It’s done via online platforms that provide a meeting ground/marketplace between real estate developers and interested investors. In exchange for their money, investors receive debt or equity in a development project and, in successful cases, monthly or quarterly distributions. 

Not all real estate crowdfunding platforms are available to everyone: Many are reserved for accredited investors — that is, high- net-worth , and/or highly experienced individuals. Still, there are several less exclusive platforms like Fundrise and RealtyMogul that allow newbies to invest as little as $500. 

Through these sites, you create an account and either select a portfolio strategy based on your goals, with brokers diversifying your money across a series of investment funds, or browse and select investments yourself, keeping up with their progress through a 24/7 online dashboard. 

Despite their convenience, crowdfunding offerings come along with considerable risk. As private investments, they’re not as liquid (easily sold) as other publicly traded securities, like stocks. Think of your funds as being tied-up over the long-term. Fundrise recommends investors have a time horizon of at least five years, for example.

10. Rent Sections of Your Home

You don’t necessarily have to purchase separate properties to benefit from having rentals. Try a method called “house hacking,” which basically means renting out a portion of your property to offset your own living expenses. Make sure to check your local regulations before trying this hack as some areas have zoning restrictions that prohibit renting out portions of your property.

For example, you could purchase a two-bedroom condo and rent out one of the rooms. Alternatively, you could purchase a multifamily property, live in one of the units, and lease out the others. If you’re looking to build your real estate portfolio with minimal upfront costs, house hacking is a great way to gain experience with landlords and property management.

Airbnb listing for a private room in a shared home

Airbnb listing for a private room in a shared home

You can even use house hacking to create a short-term rental experience. List your room or space as a “shared home” to open it up for short-term visitors. Short-term rentals can usually charge a higher per-night fee, but keep in mind that you aren’t guaranteed bookings. Make sure to list your space on Airbnb to generate a higher level of traffic and start gathering reviews.

Pro tip: If you don’t have any space inside your home to rent out, think about building a separate living unit or accessory dwelling unit (ADU) on your property. If you have land, you can purchase or build a small one-bedroom apartment and make your investment back quickly with renters. Before hiring a contractor, make sure you’re familiar with the laws and restrictions in your state.

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1. Long-term residential rentals

One of the most common methods for making money in real estate is to leverage long-term buy-and-hold residential rentals. People will always need a place to live, and that means getting involved with rental properties. You need to do the proper amount of due diligence to source your property by keeping three principles in your mind: location, location, location.

Yes, you’ve heard it before, but location is everything when it comes to real estate. Not only does this apply for actually an increased asset value over time, but also in your ability to quickly rent that property to a long-term tenant. When you’re considering long-term residential rentals, look for a great location. That’s more important than the current state of the property itself. In fact, run-down homes in great locations are one of the best investments you can make.

This involves a more traditional approach to making money in the real estate market. It means buying a property with some cash on hand to make a down payment and then holding that property for the long term. Depending on your personal situation, you can easily grab that property for a very low or even no down payment. That’s especially true if this is a pre-existing, income-producing property.

If there’s positive cash flow in a residential rental, then it could be a great investment. However, you’ll likely not find that too easily, unless the current owner is unloading for personal reasons due to a divorce or other need to liquidate that property that necessitates having some cash on hand.

Why does the value of a home appreciate?

Home appreciation isn’t always a guaranteed thing – so it helps to start with an understanding of why appreciation happens in the first place.

Fixed Supply

There is a fixed supply of land to put houses on in the United States. The increase in population gradually increases the demand – and with a fixed supply of land, this will naturally drive up the price.

Population Growth

The United States has seen a steady increase in population over time. More people means more roofs are required to house them.

In July 2015, Wake County was listed as one of the fastest-growing counties in the country. According to the Wake County Demographics Study, Raleigh is growing at a rate of 14% per year. This surge in the population increases the demand for housing which increases the price. Do your research on local appreciation rates in your city and state. Many counties like Wake County NC, will publish demographics data that they share with the public. Zillow.com is another good resource for average appreciation rates in local areas.

Amortization and appreciation contribute to profit by virtue of another concept called equity. Equity is defined as the difference between the value of an asset and any debt on it.

When we combine appreciation with the gradual paying down of the principal balance of the loan (amortization), we are left with the equity.

Look at the chart below.

As you can see, the amount of equity in the proper

As you can see, the amount of equity in the property 5 years after purchase, assuming a 30-year amortization schedule and 1% per year appreciation, is $47,898. As an owner of rental property, your net worth would now be almost $48,000 higher due to your investment decision.

Real estate offers some of the most generous tax advantages of the asset classes. Rental properties can be depreciated each year to offset any cash flow, and all maintenance and expenses can be deducted against any profits received.

Remember the $5,700 in mortgage interest that you paid the first year? All of it is tax-deductible. So, any cash flow you made at the end of the first year, whether it be $500+ (managed by a professional company), or $2,000+ (if managed yourself) would be offset by the mortgage interest that you paid. You also have the option to deduct that mortgage interest against any personal income you made that year.

There is another benefit called depreciation. Basically, you can depreciate the fixtures of the house to offset any income that you have. Even though you don’t literally have to pay out of your cash reserves to pay for this expense, the IRS will allow you to count this as an expense all the same, because they recognize that all physical assets will eventually wear out.

5. House flipping

Some people take it a step further, buying homes to renovate and resell. Though those TV shows often make it look easy, “flipping” remains one of the most time-consuming and costly ways to invest in real estate. But it also has the potential to produce the biggest gains. 

To be a successful flipper, you should always be prepared for unexpected problems, budget increases, time-inducing mistakes, a longer renovation timeline, and issues selling on the market.

It’s especially important to build a team of experts — contractors, interior designers, attorneys, and accountants — you can trust. And make sure you have the cash reserves to troubleshoot. Even experienced flippers find a project inevitably takes longer and costs more than they think.

4. 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. 

While locating a distressed seller might seem difficult, Clothier has systemized the entire process for doing this. The trick with contract flipping is to identify the distressed seller and locate a ready-to-go buyer.

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. 

12 Ways to Make Money Investing in Real Estate

This is a fact. Smart people who do their research will make money in real estate.

Real estate investing takes many forms:

1. Residential Sales and Rental Income

You can buy properties such as condos and homes and become the landlord who leases them to generate income. Long term residential rentals can become a substantial passive income stream.

Or you can buy properties that are in need of repair, do the repairs, and resell them. This is often called Flipping.

The term Flipping implies that the transaction is a quick, easy task, but that’s often not the case. Whether you’re going to lease or resell a property, pad in extra time because renovations almost always take longer than expected. And are more expensive than expected.

2. Commercial Real Estate Sales and Rents

Don’t overlook the commercial side as a money-making rental property. Post-pandemic, many towns and cities are faced with a glut of empty commercial properties, from a closed restaurant or office complex to a factory or warehouse.

Similar to a residential property, these commercial spaces can be retrofitted to fit today’s market and you can begin to collect a monthly rent for each tenant.

For example, you can subdivide a large space into a number of smaller spaces and generate rental income from the small spaces. This type of venture lends itself to creative financing, such as real estate crowdfunding platforms. Entrepreneurs and other investors may back such a venture.

3. Real Estate Investment Trusts

Trusts are often set up to manage financial investments, but real estate investment trusts handle property – residential, commercial, or a combination. The real estate investment trust can be part of an investment portfolio, also regulated by the guidelines of the securities and exchange commission. Or it can be set up by a real estate investment group.

You’ll need an attorney who specializes in the field. As a property or properties are added to a trust, a new deed is created to reflect the new “owner” (the name of the trust). You will need a trustee who is responsible for property distribution if that become necessary.

An attorney or a certified financial planner well-versed in this field can investigate whether or not a real estate investor trust is a good investment strategy and the best way to structure your investment properties.

4. Property Value Increase

This is a Flip on a delay. For example, relying on research, you analyze how much an incoming new business will impact a local real estate market. If 700 jobs are to be created from a new industry, it stands to reason that those employees will need housing. The new business is slated to open in two years. You buy a property or property, planning to rent it or let it sit until the demand for housing increases. When the time is right, you sell at a profit.

5. Cleaning Services

It’s a relatively unknown niche in the house cleaning industry – houses that are new construction need to be cleaned, especially if the interior has been dry-walled. The dry wall seams must be taped and spackled, then sanded until smooth enough for painting. The dust from the sanding must be vacuumed and wiped clean before the builder’s punch list – finishing trim, painting, installing floors – can be completed.

Landlords may also need this service for properties that are in-between tenants.

6. Staging

A staging company uses a set of household goods such as furniture and accents (wall art, bedding, area rugs, etc.) to give a house a welcoming look. The company delivers and removes the items needed for staging.

This can be a face-paced business, as realtors ask for quick staging before an open house, for example. Staging is most often used to prep a house for a successful open house.

See Also: 30 Real Estate Marketing Tips

7. Photography

We’ve all seen the images used to help sell a house. Showcasing a property with good photos takes a lot of time. Increasingly, realtors like to use drone footage to show the location of a real estate property.

8. Foreclosure Specialty

When a company becomes owned by a bank or other hard money lenders, it often becomes listed with a real estate company. But the foreclosed property may be cluttered with items the previous owners have left behind. It may also be dirty.

There are a couple ways you can make money by working with foreclosures:

You can become the management agency that cleans it up, readies it for sale, and keeps the grounds mowed or plowed until it sells.

You can be the person who buys a foreclosure as an investment property, to either rent or sell. There are investors whose entire real estate portfolio of rental real estate is comprised of foreclosure properties.

Typically, each real estate company will have one or two agents who handle foreclosures. This can be a slippery slope, as foreclosures may be complicated by liens on the property for back taxes or utility non-payments. You’ll want a good title search.

9. Property Management Company

A company can handle indoor or outdoor chores, or both. Duties can range from tenant screenings (credit and criminal record checks) to serious property maintenance (electrical, plumbing), and even rental income collected. Or a property manager can handle mowing, snow removal and other outdoor maintenance.

10. Home Warranties/Inspections

This is a great option for a retired contractor. Often property values are based on inspections, which detail things such as the type of electrical service, age of roof and windows, condition of foundation and more.

11. Factory and Commercial Rehab and Design

Many empty factories and other commercial buildings could thrive if retrofitted to be more up to date. Once you know your local market, you may be able to identify a need and fill it.

For example, such properties can become “incubators” or “hubs” for businesses which benefit by grouping. For example, an empty shoe factory can be sectioned to hold a couple restaurants, small commercial ventures and day care.

12.A Combination of These

A key to successful real estate investing is diversification. For example, you can combine staging and photography (and charge separately for each!). You can buy rental real estate from foreclosure stock. You can buy and prep the property with furniture and necessary household basics and use it for short term rentals or vacation rentals, such as the Air BnB or VRBO.

Residential Real Estate: Paths to Profits

Here is a closer look at some of the many ways that you can earn income from residential properties.

Buy and hold

This is one of the more traditional ways of earning income from real estate. There are a number of ways to accomplish this: You can buy a single-family home and rent it out; buy a multi-family home and live in one of the units while renting the others—ideally to cover the mortgage and your own housing expenses; or purchase a multi-family home and rent all of the units—either managing the property yourself or hiring a management company to handle renting units, collecting rent, addressing needed repairs, and so on.

Flipping

Property flippers specialize in adding high-return fixes to houses in a short time and then selling them. Flipping can be lucrative if you know how to find properties to fix up, you have the necessary skills to do the renovations yourself or oversee a crew to carry them out, and you have a sense of a property’s underlying costs and potential value.

Airbnb and vacation rentals

The demand for home-away-from-home rentals had taken off in recent years as many travelers preferred this option to staying in a hotel. Homeowners could earn income by renting out a house or even just a room on a short-term basis, especially if the property is in area that's a well-known tourist destination. It's unclear when that market will return. But should it reappear, keep in mind that short-term rentals are regulated and sometimes even banned in certain cities. Check your city's bylaws before listing a property on a website such as Airbnb, VRBO, or HomeAway. And also figure in what additional deep cleaning and sanitizing between guests will add to the costs.

5. Invest In Real Estate

If investing in physical real estate doesn’t work for you, there are other ways you can use when you learn how to invest in real estate, including:

REITs

A Real Estate Investment Trust (REIT) invests in commercial real estate properties. You crowdfund your money with other investors. Since commercial properties don’t appreciate as quickly as residential properties, the benefit of REITs is the monthly cash flow you may earn.

Since REITs are publicly traded, you can buy and sell shares on the market, which means your money is more liquid, allowing you more investing opportunities.

ETFs And Mutual Funds

You can also invest in real estate ETFs and mutual funds. A fund manager manages both investments (ETFs are passively managed, and mutual funds are actively managed). ETFs have lower costs than mutual funds, and you can trade them like stocks any time of day while the market is open. Mutual funds only trade once a day after the market closes. They are a great way to diversify your real estate investments across different types of real estate and even different real estate markets.

Crowdfunding

You may be familiar with crowdfunding to help someone who needs money on GoFundMe, but the same strategy applies to real estate crowdfunding. You and hundreds of thousands of other investors can pool your money to invest in either a property’s equity or debt. Either way, you earn a prorated amount of the rent as cash flow based on your investment. It’s a great way to get your hand in the real estate investment pot without carrying the responsibility of owning real estate yourself.

REIGs

A REIG or real estate investment group is a group of private investors who work together for a similar goal – investing in real estate. As a group, you may decide to invest in long-term residential properties, short-term vacation rentals, or fix-an-flip properties.

When you work with a group of like-minded individuals, you may have a greater chance of securing better deals or making larger investments since you pool your money together.

Wholesaling

Real estate wholesaling is for investors who know how to find real estate deals and have a target market they can sell to. Wholesalers usually turn properties around within 30 days. You buy properties at less than market value and then sell them for much more.

4. Interest from loans  

In real estate, it is rare for someone to pay for a property up front, all in cash. 

Most properties are financed with loans, or an arrangement where investors lend money to a real estate developer or owner and earn money from interest payments on the principal of the loan. This type of debt investment is commonly used by REITs, private equity firms, and real estate investment platforms. 

There can be several types of debt within the capital stack. The capital stack refers to the organization of all of the capital from different investors that goes towards financing a real estate transaction. Importantly, it defines who has the rights (and in what order) to the profits and income generated by the property. 

The terms you need to know if you're going to inveThe terms you need to know if you’re going to invest in RE loans

 

The capital stack can include equity, mezzanine debt, junior debt, and senior debt. Senior debt is the foundation of the capital stack, which means that investors in the senior debt of an investment are “more senior” to everyone else, so these debt holders will be repaid before any other capital contributors.  

This brings us to another important concept: debt can be secured or unsecured. The distinction between secured and unsecured defines an investor’s rights in the event that the property is foreclosed upon or the loan defaults. 

Senior debt is typically secured by a mortgage or property, which serves as collateral for the loan. This means that it poses the least amount of risk, and therefore, typically generates the lowest return in the capital stack. Unsecured debt usually has higher returns, but it has no collateral backing. 

Investment income from loans is attractive to many investors because it can provide consistent cash flow in the form of passive income. As a debt investor, you do not gain any ownership in the company or property (in contrast to equity investment). Therefore, in this scenario, you are profiting from a property that you don’t own. 

A note of caution 

While we’ve elaborated on the ways investors can make money in real estate, like any investment, no thing is a sure thing. All investments have a risk/reward profile, and real estate has its own unique set of risks. There is always a chance that a property could need maintenance and repairs, a house could flood or even burn down, a tenant could miss rental payments, or a mall could close. All of these expenses get factored into the bottom line and could impact the return on your investment. Part of your job as an investor is to ensure that the sponsor of the transaction is well-equipped to deal with these scenarios and has experience managing such investments. 

Conclusion

Real estate offers investors several proven methods for making profits—through appreciation, rental income, business activities, and interest payments from loans. For years, real estate has generated incredible wealth for people through these methods. Though the benefits of real estate are quite obvious, it can be expensive and a lot of work to manage on your own. The good news is that now, you don’t have to! You can invest in real estate with sponsors who will manage the investment right on Republic. Check out the latest opportunities today.

This educational article is provided by Republic to help its users understand this area of the market, it should not be construed as investment advice as it is impersonal, disinterested and was produced by Republic for Republic’s users, without remuneration received or expected.

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