The ultimate goal of real estate investing is to build wealth and make money. If you ask any successful real estate investor “how to make money in real estate?”, you will often hear the same answer, “educate yourself.” Most beginner real estate investors think that learning how to be successful in real estate investing involves step-by-step guides about finding the right properties and how to price rent. These are definitely important but learning how to make money in real estate is all about understanding the principles of real estate investing, from simple real estate metrics to the most complicated investment strategies.
How to Make Money in Real Estate: Understand the Total Costs Involved with Investment Properties
Buying investment properties for the purpose of renting them out is a good investment strategy. However, you must consider the costs involved with such investments. Property tax and property insurance are obligatory by law, and in most cases, the landlord’s insurance premium is higher than a homeowner’s insurance premium, which means that insuring a rental property costs more money. Another hidden cost that highly affects your cash flow is property management or the cost of keeping your investment property in good shape to keep tenants and avoid vacancies.
Depending on the location of the property and other factors, real estate investors can opt for short term or long term rental strategies. A major hidden risk associated with both rental strategies is vacancy cost, which is more evident in short term rentals due to high tenant turnover. To mitigate these costs, make sure to always perform an investment property analysis to assess the profitability of your real estate investment.
Related: What Are the Advantages of Real Estate Investment Analysis?
How to Make Money in Real Estate: Take Your Finances into Account
Knowing your own finances before you make a real estate investment decision is crucial to your success in real estate investing. Estimating your net worth is a benchmark that you can use to leverage your real estate investments. Moreover, even if you have poor credit and significantly low capital, there are several methods to make money in real estate with little or even no credit at all.
How to Make Money in Real Estate: Get Familiar with Real Estate Metrics
Inexperienced real estate investors struggle with evaluating the performance of their real estate investments due to the lack of education about basic real estate metrics. When performing an investment property analysis, one must be familiar with terms like net operating income (NOI), cash flow, net present value (NPV), cap rate and cash on cash return. Knowing how to calculate and interpret these metrics is important to make successful investment decisions.
How to Make Money in Real Estate: Use These Real Estate Investing Tools
As discussed previously, knowing certain real estate metrics is important to succeed in real estate investing. The following real estate investing tools will make your job easier and minimize the effort needed to calculate the values manually.
- Mashvisor’s rental property calculator: this user-friendly tool allows real estate investors to easily obtain cap rates, cash on cash return, cash flows and occupancy rate of investment properties. A must-have real estate investing tool.
- Mashvisor’s property finder: this tool provides you with a list of top performing investment properties according to your set preferences. A research which usually takes 3 months now takes only 15 minutes.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
How to Make Money in Real Estate: Use These Strategies
The most common strategies that real estate investors opt for are either short term or long term investment strategies. In this section, you will get to know how to make money in real estate using both strategies.
1- Long term real estate investment
Buying an investment property as a long term investment is often known as the buy-and-hold strategy. Real estate investors make money using this strategy simply by collecting rental income by leasing out the property to tenants under a traditional long term lease contract or as a short term Airbnb rental. Moreover, the appreciation of a property’s value over time is another advantage of buying a long term investment property.
Another long term strategy is buying shares of real estate investment trusts (REITs). REITs allow anyone to invest in large real estate portfolios and make a profit from the high dividend yields distributed to shareholders.
2- Short term real estate investment
Short term real estate investments are more dynamic investments that payoff faster, but usually involve more risk and require more experienced real estate investors. The most common strategies in this category are fix-and-flip and house wholesaling. Fix-and-flip is simply buying an investment property below market value, which is typically a property in bad condition, renovating it and selling it for a profit margin that covers initial investment and renovation costs.
If the question of “how to make money in real estate without spending a single dollar” seems unrealistic, then you haven’t heard of wholesaling. How does it work? The real estate wholesaler finds a property for sale, negotiates a deal with the seller and then finds a potential buyer. The profit that a wholesaler makes is the difference between the final selling price and the set price of the property.
How to Make Money in Real Estate: Consider a Career in Real Estate
In the real estate world, making money is not limited to investing in real estate properties. A career in real estate as a real estate agent or a real estate appraiser can be a good source of income. The only issue is that both professions require a certain level of education, work experience in the field and of course, a license. A key to success as a real estate agent or appraiser is to never stop educating yourself.
Related: Learn How to Become the Best Real Estate Agent for Investment Properties