The real estate industry is a viable investment because it provides a good return on investment without too much hustle. The risk level and rate of return vary with the specific area of investment e.g. residential property, commercial property etc. there are various ways in which you can make money through investing in real estate and some are highlighted below.
Long-term rental properties
This could either be residential or commercial properties. In either option, the main focus should be cash flow. One way of achieving this cash flow is by buying a property below the current market value, remodel the house to add its value and this will give you higher returns.
Fix and flip
This is whereby you purchase an old house at a very low market price, upgrade it by repairing and remodeling and then selling it at a profit or renting it out for a monthly rental income. If you chose this option, it is advisable to work engage a contractor for the repair works as opposed to working on it by yourself. (Not unless you are a contractor). It’s essential you use a mortgage calculator on steroids to ensure you can afford the repayments while developing the house and allow ample time for the work to be completed and sold on.
Income through wholesaling
An investor will buy a property (mostly residential), and sell it to another investor straightaway without remodeling the property. In some cases, the initial investor does not even buy the property, rather they are under contract and therefore sell it to the willing buyer at a profit.
Income through your private residence
This is where you purchase a property for your personal use. A big plus for this approach is that if you occupy the house for at least two years, you end up making tax-free profits. You can also expand your portfolio by buying several private residential which you can rent out and get a steady monthly income.
Real Estate Investment Trusts (REIT)
This is where an investor buys the REIT just like they would shares of a company. Investors pool together and invest in the real estate industry and the proceeds are shared among the investors as dividends. The rate of return fluctuates just like the stock market.
This investment is whereby an investor buys a property far away from their current neighbourhood, mostly because of the buying price. To make good returns on this investment, it is prudent to survey your area of interest before you settle for a location. You will also need a reliable realtor as well as a good property manager, who will oversee the remodeling and manage the property on your behalf.
Properties for vacation rentals
This involves buying a property in a top tourist destination. You can engage a property manager to rent out the property, maintain it and collect the rent all on your behalf. With vacation rentals, the high season gives you maximum returns while the low season might give you absolutely no income.
This is the option where investors buy a property with the aim of selling it as soon as the market prices rise. In the meantime, the property owner gets a short-term tenant as they wait for the property to appreciate. If cash flow isn’t your primary investment goal, then you can choose this option, otherwise the downside is that you lose money every month the property is unoccupied and the market prices aren’t rising.
Income from non-performing notes
Investing in non-performing notes means that you are just buying the mortgage, not the property. When the initial property owner defaults on making their mortgage payment, then the mortgage is sold out as a non-performing note and the buyer can foreclosure, permit a short sale, complete a Deed in Lieu or find another way of making money out of this mortgage.