5 Ways to Profit from Real Estate Investing
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Real estate investing is lucrative. That’s not just an empty statement; it’s fact.
According to recent research, the U.S. real estate market grew by a whopping $11.3 trillion to reach $33.6 trillion in early 2020. That’s an equivalent of the combined GDP of the United States and China — two of the world’s largest economies.
But it’s not just the United States. The story is the same in different parts of the world. Indeed, respondents of a 2017 survey described Europe as the most attractive region worldwide for real estate investment.
The bottom line is real estate may have produced more wealthy people than any other industry.
Be that as it may, the investment potential of real estate relies heavily on your understanding of the market. And that’s where this post comes in.
This article considers how to make money through real estate investing — from the fundamental methods to recent opportunities. We’ll also explore some strategies for successful real estate investing.
Let’s jump right in.
Five Ways to Profit from Real Estate Investing
Here are five ways to build long-term wealth from real estate investing.
1. Long-Term Rental Income
According to the U.S. Census Bureau, individual real estate investors accounted for 74.4 percent of rental properties in the country. The reason is not far-fetched — people will always need a place to live.
With that said, it’s best to do the proper due diligence before purchasing the property. For example, you may want to consider locations that potential renters might find appealing.
That way, you can quickly find tenants to pay a monthly rent for occupying your property. The three ways to profit from real estate rent are:
Commercial property income
Residential property income
Royalties for adding structures to raw land
Again, rental property relies on three vital principles — location, location, location. So, a desirable environment is vital for securing a tenant.
2. Buy and Hold
The buy-and-hold strategy is a conventional way to profit from real estate investing. It involves buying a piece of property and retaining it for a long period without reacting to market fluctuations.
But how can you achieve this? Well, there are various ways to profit from the buy-and-hold strategy.
For instance, you could buy a single-family home and rent it out. Alternatively, you can purchase a multi-family property and rent out multiple units while living in one.
Finally, you could manage the property yourself or hire a management company to handle the logistics. These include renting the units, collecting rent, handling repairs, and renovating.
3. House Flipping
Flipping describes the process of buying a revenue-generating asset and reselling it for profit. In real estate, house flipping involves buying, renovating, and selling properties for profit.
Flipping can be lucrative for investors that go after the ugliest properties in the nicest neighborhoods.
Besides finding the right property, you also need skills to renovate or oversee the renovation. Finally, it’s best to have a sense of the property’s potential value.
One way to determine the maximum price for an investment property is to use the 70 percent rule.
It means you shouldn’t spend more than 70 percent of the home’s After-Repair Value (ARV) minus the repairs needed. The ARV is what the home is worth after the complete renovation.
4. Airbnb and Other Home Rental Service
The demand for home rental services has taken off in recent years.
According to a report, Airbnb hosts have collectively earned over $110 billion since its inception. What’s more, the most experienced hosts make an average of $10,000 per year.
The process is simple. It entails homeowners earning income by renting out a house — or even a room — to travelers on a short-term basis. This real estate investing option is especially useful when considering properties in popular tourist destinations.
With that said, specific cities regulate or outrightly ban short-term rentals. As such, it’s essential to check your city’s bulbs before listing your property on Airbnb, HomeAway, or VRBO.
You may also want to consider the additional cost of deep cleaning and sanitizing between guests.
5. Real Estate Appreciation
Appreciation is one of the most common ways to profit from real estate investing.
Admittedly, there’s no guarantee that the value of a property would increase over time. However, historical data suggests that real estate prices have appreciated over the long term.
According to the U.S. National Home Price Index, home prices appreciated by 13.3 percent between March 2020 and March 2021 — during the recession.
That means if you had purchased a property worth $250,000, it would be worth over $283,000. In other words, you made $33,000 within a year.
You could also use “forced appreciation” to increase your property’s value. That involves physically upgrading the property to make it more appealing to buyers.
Wrapping Up: Other Real Estate Income Sources
There’s no denying that the real estate market is lucrative. However, the investment options are not limited to the list above. Other methods include short sales, lease options, and contract flipping.
You may also want to consider Real Estate Investment Trusts (REITs) and Mortgage-Backed Securities (MBSs).
Regardless of the investment method, it’s essential to understand the risks. That way, you’ll know whether the overall process is worth the effort.