By Joel Wanjiku
The real estate market is highly lucrative and offers dozens of opportunities and ways to make money. For example, you can buy and rent or sell property, invest in real estate securities, flip distressed properties, and more. Interestingly, some strategies for making money in real estate are easier and more rewarding than others. Here is a quick overview of various ways to make money in real estate.
5 Best Strategies for Making Money in Real Estate
While there are dozens of strategies for making money in real estate, the following five are the most convenient and rewarding:
1. Residential & Commercial Rentals
Developing or buying property and then leasing or renting it out is one of the main strategies for making money in real estate. Notably, it offers the benefit of a reliable income source generated from rent and lease money. It is also reliable, considering that people always need property to live in or work from, albeit that may depend on factors such as location.
However, it is worth noting that investing in long-term residential and commercial rentals also has some challenges. Most notably, the capital requirements are high, and you must ensure proper maintenance and compliance with property laws and regulations.
2. Appreciation
Land and real estate properties have the potential to increase in value over time, referred to as appreciation. For example, a property may be valued at $100,000 today and $200,000 after ten years, appreciating by $100,000.
Buying land or property in a prime location is the easiest way to make money through appreciation – demand for the property or land increases over time, pushing its price up. You can also develop barren land or an existing property’s neighborhood to drive appreciation. Finally, improving an existing property through repairs and renovations (house flipping in a nutshell) also causes appreciation.
However, it is worth noting that appreciation isn’t always guaranteed, especially if the land or property is in an undesirable location. Moreover, appreciation may take years, making it a long-term strategy.
3. House Flipping
House flipping is one of the most exciting strategies for making money in real estate, considering the popularity of home renovation TV shows. It involves buying distressed houses in good locations, fixing them up, and making noteworthy improvements to increase their value (appreciation).
Distressed houses sell considerably below the standard price, saving you money, and the profit margin can run into tens or hundreds of thousands of dollars. However, it is important to ensure that the cost of repairs and renovations doesn’t erode or exceed the profit margin, so do extensive research before investing in a house-flipping project. Additionally, you need a reliable network of various real estate professionals, such as agents and property managers, to find suitable houses and contractors to handle repairs and renovations.
4. Short Sales
Short sales involve buying homes that are at risk of foreclosure for less than what the owner owes on the existing mortgages. Besides the outstanding mortgage payments, the properties are usually in good condition and don’t require costly repairs and improvements. To this end, you can sell the property at standard market prices and make profit margins ranging from tens to hundreds of thousands of dollars.
Notably, short sales usually require cash payments, and you may have to buy the property without touring it first. However, the returns on your investment can be quick, even instantaneous.
5. Investing in Real Estate Securities
Investing in real estate securities is the easiest and most affordable way of making money in the market. The most reliable real estate securities include the following:
- Real Estate Investment Trusts (REITs) – REITs are publicly traded companies that invest in real estate and share 90% of their profits with investors.
- Real Estate Investment Groups (REIGs) – REIGs are similar to REITs in many ways, but they usually require higher capital amounts, have a different revenue-sharing system, and can be private.
- Real Estate ETFs & Mutual Funds – Real estate ETFs and mutual funds are investment portfolios managed by a professional fund manager.
It is worth noting that different real estate securities have varying returns and terms. Interestingly, you can invest in worldwide real estate securities remotely via online brokerage and stock exchange platforms.
Conclusion
The real estate industry offers many opportunities to make money, and there are dozens of ways to leverage these opportunities. Overall, the five strategies discussed in this article are convenient and highly rewarding, but they are not without their risks. To this end, it is important to do further research and consult professionals and experts when investing in real estate.
