How to Make Money in Real Estate

Key Takeaways

• The most common way to make money in real estate is through appreciation, an increase in property value.
• Location, development, and improvements affect real estate appreciation.
• Income can also be derived from rents in residential and commercial properties.
• Investment alternatives include REITs, MBSs, MICs, REIGs, and real estate crowdfunding.

Profits and Property Value

• Appreciation: Property value increases over time. Investors profit by selling the property.
  • Refinancing at a lower interest rate can increase return by lowering the cost basis.
• Undeveloped Land: Appreciation through development, discovery of valuable minerals, or property improvements.
• Location: A key factor in appreciation; development and improvements in the area can increase a property’s value.

Real Estate Income

• Raw Land Income: Income from royalties or regular payments for structures on the land.
• Residential Rent: Fixed monthly payments from tenants; location is crucial.
• Commercial Property Income: Rent and fees from tenants, sometimes for options like the right of first refusal.

Buying and Selling Strategies

• Buy and Hold: Renting out a property or living in one unit while renting others. Management can be self-handled or outsourced.
• Flipping: Short-term investment by making high-return improvements and selling quickly.
• Vacation Rentals: Renting property short-term in tourist areas; subject to local bylaws.

Important Considerations

• New rules (expected July 2024) may lower commissions for home buyers and sellers, affecting traditional commission structures.

Other Real Estate Income Sources

• REITs: Investing in a fund of commercial properties where rental income is distributed as dividends.
• MICs, REIGs, MBSs: Investment in private mortgages rather than properties, with interest passed on to investors.

Alternative Investments

• Real Estate Options: Paying a fee to secure the right to buy property at a set price within a specified period.
• Short Sales: Buying property from lenders when owners default on mortgages.
• Lease Options and Contract Flipping: Leasing with an option to buy and selling contract rights, respectively.

FAQs

• Real estate investment is not always profitable due to market cycles.
• Appreciation is the common way to profit.
• Properties can be found through realtors or online platforms like Zillow and Redfin.

The Bottom Line

• Real estate offers various strategies like appreciation, rental income, and alternative investments.
• Investors should weigh costs and risks before purchasing properties.