Even in today’s uncertain economic climate, real estate investing is one of the world’s most secure, tried-and-true methods to build wealth with minimal risk. In addition, you don’t need to have a massive amount of capital to get started, if you know how to locate and close profitable deals.
Here are five proven ways to make money in real estate to help you understand the most common ways to make a profit from investing in property:
1. Rising Property Value
Rising property values – aka appreciation – is perhaps the most common way that real estate can turn a profit. Some types of real estate will increase in value more rapidly than others, but one thing all properties have in common is that appreciation can only be fully realized through selling. Still, when a property appreciates, you may be able to increase your return on investment (ROI) by refinancing at a lower interest rate to lower your cost basis for the property and increase the amount cleared whenever you do choose to sell.
2. Remodeling to Make Money with a Future Sale
If you’ve owned a property for some time or purchased a home at a great price that needs some work, it might make sense to consider remodeling key aspects of the home before selling in order to maximize your profit. Keep in mind that some renovations will recoup more value than others, with manufactured stone exteriors, garage doors, kitchen remodels and bathroom upgrades comprising a few of the top home improvement projects that can recover the most value. Just be sure to hire experienced contractors, or be careful if you decide to DIY… Tackling a remodeling project by yourself might sound like a great idea at first, but it could also wind up costing much more in the long run to correct rookie mistakes!
3. Buying at the “Wrong” Time
Learning how to make money in real estate can require thinking outside the box. What some people might consider the “wrong time” to buy could actually wind up being a real boon if you know where to look. For example, if you buy a house in the dead of winter, right after a natural disaster or at the height of a major market crash, you can set yourself up to make a serious profit. Some sellers are more open to negotiating during the off-season, and others will be ready to bail whenever things don’t go exactly as planned, which can present fantastic opportunities for savvy buyers.
4. Collecting Rental Income
It’s a tale as old as time: Buy a decent property in a high-demand area, then renovate (if necessary), rent and repeat. When choosing an income producing rental property, you need to make sure the income is sufficient to cover expenses, and you will also need to decide whether you prefer to focus on renting to long-term tenants or short-term vacation rentals. Both can provide consistent ongoing income over time, just be sure to consider how the mortgage (if applicable), along with insurance, taxes, utilities, property management and maintenance fees will stack up against the rent you can count on collecting.
5. Doing Your Homework
No matter what type of real estate investment you are most attracted to, patience and diligence will pay off. Also, never be afraid to ask a million questions and always get a second opinion if you aren’t sure about some aspect of a potential investment property. Taking a bit of extra time now can save you countless hours and thousands of dollars in the long run! Be sure to have a qualified home inspector thoroughly check out each new investment property, and work closely with a trusted real estate professional who understands the local real estate market and can help you find the ideal property for your unique situation.
Do you have other questions about how to make money in real estate? Ask us in the comments section below!