More than any other industry, real estate has the potential to generate wealth and get the most out of investments. However, even with its reputation for being incredibly lucrative, many people still hesitate to enter the industry and experience everything that it has to offer. While it may seem daunting, making money in real estate is worth the hard work.
Many people have misconceptions about what it means to invest in real estate. Contrary to popular belief, investing and making money in real estate does not always require you to have excellent credit, a lot of money in your account, or even major assets.
Depending on which route you decide to take, you can begin your journey in real estate at any point as long as you have the strategy to back it up. Whether you’re looking for a long-term investment or a quick way to earn a profit, there are many avenues for making money in real estate.
Confused about where to start and want to know more? We get it! The real estate business can be overwhelming if you’re just getting started. However, you’re in luck, as we know just how to help you succeed in the industry.
In this article, we will guide you through eight different ways that you can earn money in the real estate business.
From running long-term rental homes to flipping houses for profit, we’re confident that at least one of these methods will help you reach your financial goals. By the end of this article, we hope that you will have a better and clearer picture of what it means to invest in real estate and earn a solid profit in return.
So, keep reading to find out how!
8 Ways to Make Money in Real Estate
1. Long-Term Rental Homes
One of the most popular methods for making money in real estate is to make use of long-term residential rentals that you purchase and hold for an extended amount of time.
People will always be looking for a place to live, which means that getting involved with rental properties will always be a lucrative business. However, it’s important to be diligent when choosing which properties to invest in. The location is the most important factor in this decision.
While you may have heard this before, the location of your rental property is so important that it is always worth repeating. When it comes to real estate, location is everything. Not only does the location of your property help to increase its value over time, but it will also help you find a long-term tenant quickly and easily.
So, when you begin to consider investing in a long-term residential rental property, always look for the best location, as this can often be a more important factor than the condition of the property itself. In fact, purchasing a run-down property in an excellent location can often be an incredibly lucrative investment that will prove to be worth it over time.
Investing in residential rental properties tends to involve a more traditional approach to making money in real estate. Overall, your goal would be to purchase a property using funds that you already have as a downpayment and then hold the property long-term to get the highest ROI possible.
You can then pay the mortgage using income from rent payments. Depending on what your personal circumstances look like, you may even be able to purchase the property for a very low down payment, or maybe even no down payment at all! This is especially likely if the property that you are purchasing was already a rental home.
It is important to note that owning a rental property comes with a lot of responsibility. However, if you are looking for a more passive income, you can always hire a reliable full-service property manager to take on those tasks for you.
This way, you’ll be able to enjoy the income without having to deal with things like tenant disputes, maintenance requests, landlord-tenant laws, or any other responsibilities associated with residential rental properties.
While hiring a property manager may come at an extra cost, sometimes it is worth it if it means you are able to free up your time and energy. You also always have the option of selling the rental property in the future.
2. Options for Leasing
If you’re looking to earn money from real estate in a way that involves less risk than flat-out purchasing a property, taking advantage of lease options can be a great route to take. Lease options can allow you to get involved without being required to pay a significant amount of money upfront or even have great credit to begin with.
This is because you are leasing with the option to purchase. This route tends to be a great choice when the housing market is beginning to climb because you are setting a price that will remain the same if you choose to purchase the property at a later date.
So, for example, if the housing market rises in a significant way, you would be able to purchase the property for a lower cost than you would normally. You could also choose to sell your rights for that purchase to another interested buyer. As long as this remains an option that you can choose at any time, it could result in a significant profit for you.
However, it is important to make sure that the deal remains optional, rather than a contract that says you must purchase the property at the end of the lease regardless of the circumstances. As long as this deal is done strategically, pursuing lease options could end up being a great way for you to earn money in real estate.
3. Flipping Properties with Renovations and Upgrades
Due to the boom in home renovation shows, the real estate industry has experienced a huge increase in the traditional renovation flip market. This culture has grown significantly over the last few years.
While it’s true that there can be a significant amount of money made using this method in real estate, it’s important to be careful, especially in the early stages. If you lack the knowledge and experience to carry out these projects properly, you may find yourself choosing the wrong home and losing out on money, which is never ideal.
But how exactly do you know which houses to choose when it comes to starting your renovation house flipping journey? The biggest advice from leading professionals is to choose the least attractive-looking single-family homes in the nicest neighborhoods.
At the end of the day, the real value of a property is in the purchase price. An additional difficulty in knowing which homes to choose is understanding what the after-repair value will be of the property, and whether or not the investment will truly be worth it.
Further, an important aspect of flipping houses is finding creative ways to solve all sorts of problems. This is important in any faction of real estate, but it is especially true if you’re looking to flip.
Before committing to a property that you plan to flip with renovations, make sure to ask yourself how much the home will be worth after you have invested in the required repairs and upgrades.
In order to accurately determine the answer, you’ll need to foster a strong relationship with a reliable general contractor and conduct an on-site tour of the property. While purchasing a property without doing the work to go inspect it may seem like the easier route, you could end up losing money if you don’t really know what you’re doing.
While making money with a home renovation flip can be relatively straightforward compared to other options on this list, it’s important to have a good understanding of the underlying costs involved, in addition to the property’s potential value.
4. Flipping Contracts
If you’re looking to make money in real estate without being required to put in too much money upfront, you may want to look into flipping contracts. Another term for this is wholesaling real estate.
This is a way for investors to act as intermediaries between a buyer and a seller. Flipping contracts is similar to flipping properties, except the party who is doing the flipping never takes full ownership of the home. To do this, all you have to do is find a property owner who is desperate to sell and a motivated potential home buyer, and bring them together.
While this may seem complicated, it’ll be easier than you’d think. You will ultimately have to find vacant properties or property owners that are behind on their mortgage payments. This is often the trickiest part of contract flipping.
For an opportunity like this, a vacant home owned by a seller who is desperate to get the property off their hands is your best bet. By joining these two parties, you will be able to entirely cut out the need to scramble in order to find an interested buyer after you have already entered the contract.
That situation generally has more risk involved. However, if you have already located the buyer and the seller beforehand, you will easily be able to enter into a contract without the risk of getting stuck and having to close on the property yourself.
5. Short Sales
A short sale occurs when the owner of a property is behind on their mortgage payments, but the home has not yet been sent into foreclosure. The homeowner then sells the home for less than they owe on the mortgage.
Essentially, a short sale is a way for both the property owner and the lender to get themselves out of a difficult situation by both taking a financial loss. This means that it is possible for a buyer to profit from the sale.
In order for this transaction to successfully take place, all parties, including the owner, the lender and the buyer, have to be on the same page and in agreement with the terms of the sale. This can end up being an excellent opportunity to make a profit and flip a home without investing too much in a property or renovations.
While this may seem like a simple process to make a quick profit, succeeding with short sales can be a tricky business. Often, you will need to pay for the property outright in cash, and at times you will have to do so without even seeing the property beforehand.
Unless you are a long-time, experienced investor who knows exactly what to look for, committing to a property without a proper inspection and complete review could involve a lot of risks.
While short sales take time, they are often worth the wait. If done correctly, the potential return on a short sale can be significant. Tens of thousands, or even hundreds of thousands of dollars can be earned as soon as you sell the property to a new owner due to the bank being stuck with a bad investment.
6. Vacation Rental Properties
Vacation rental properties can be a lucrative investment that has the potential to earn you a significant amount of passive income in the real estate industry. This is especially true if your property is located in a high-traffic tourist destination.
Places like Miami, Los Angeles, and other major tourist cities will always have a high demand for short-term rental properties, as there are always people who are looking to visit these places for a vacation or even for business events. Whether you are a property manager or owner, you will be sure to make a decent income on vacation properties.
As long as you provide customers with a high-end experience, you will not only be able to find new vacationers to rent out your property, but you will also be able to get them to come back again and again.
So, how do you participate in the vacation rental market? The answer is to invest in relationships around you.
Leverage your connections with any existing property owners in the area. Build solid bonds. Ensure that you are providing customers with the highest quality experience that you can. Create detailed systems to ensure that nothing gets lost in the chaos. Go above and beyond for anyone who is staying in your vacation rental home.
If you own a vacation rental, list the property on sites like AirBnb, HomeAway, or Flipkey. If you choose to manage vacation properties for other property owners, see how you can help to take some of the responsibilities off their hands and free up their time.
7. Hard-Money Lending
Hard money lending refers to lenders who are able to provide people with short-term loans. This typically happens when the person receiving the loan does not qualify for a standard loan with a bank.
To participate in this kind of lending, you will need a significant amount of funds available to you. Due to the loans being for very short periods of time, they typically have very high interest rates.
Becoming a hard money lender requires you to have a higher level of funding, and it most likely won’t be the first way that you’ll be able to start out making money in the real estate business.
However, as you build your network over time, in addition to building your capital and a solid portfolio of previous deals, you could end up as a provider of short-term loans. This will most likely earn you an excellent rate of return.
Don’t have the funds to provide a large loan? There are still ways to capitalize off of a hard money loan. As long as you have the expertise and strategic know-how to be able to successfully identify which deals are the best opportunities, it won’t be too difficult to find other investors to get on board with the idea.
While there may be a significant amount of risk involved with these decisions, with the right interest rates, you’ll be able to see a high reward. You’ll be able to keep your cash liquid in addition to earning a decent-sized profit without having to wait a long time to see your returns.
8. Commercial Real Estate
One excellent opportunity when it comes to making a profit in the real estate business is investing in commercial real estate. How does this work? Well, when it comes to commercial properties, people are always looking for spaces to run their companies out of.
Whether it’s a retail space or an office building, these properties are one of the most lucrative spaces in the real estate business.
In order to succeed with commercial properties, you’ll want to focus on developing the property and increasing its value through renovations and upgrades. As long as you are able to continue to add value to the property, investing in commercial properties can generate the most income out of any other options on this list.
As your business grows and you are able to invest more into these properties, you may even be able to find ways to open up lucrative spaces such as shopping malls and large-scale office buildings.
After all, if done correctly, the properties with the largest number of tenants are often the ones that are able to bring in the highest amount of income. While you have to start small with any aspect of real estate investment, this method has the potential to grow exponentially.
So, now you know the ins and outs of how to make money in the real estate business. At the end of the day, whether you’re running a vacation rental property or flipping contracts, it’s important to always remain strategic, choose wisely, and plan ahead.
This is how you will be able to generate the most income and identify the investments that will be worth it in the long run.