As a new real estate investor, learning how to make money in real estate can be a challenge. With the proper guidance, however, you’ll start making money in real estate in no time. Even in the current real estate cycle and amid the COVID-19 pandemic, there are many ways to make a lot of money in real estate. In this blog post, we’ll discuss the best ways to make money in the US real estate market.
1. Single-Family Rentals
Single-family rentals (SFRs) have always been a top-tier property type for making money in real estate. There are a variety of reasons why. For starters, these one-unit investment properties are relatively affordable. They are also versatile and can be used for many different real estate investment strategies. For example, single-family homes can be rented out as either long-term residential rentals or Airbnb rental properties. In addition, single-family homes generate consistent cash flow. This also ties in with the ever-increasing demand for SFRs from tenants. In the third quarter of 2019, for instance, single-family property vacancies were at 6.8%, which was a 0.3% decrease from the year prior. Demand for SFRs is not expected to decrease any time soon, even during the coronavirus pandemic. Since people need places to live, these residential long-term rentals will remain hot choices. Demand will, if anything, begin to uptick due to the current state of the economy. With record-low mortgage rates due to the federal interest rate cuts, real estate investors are capitalizing on the opportunity of single-family rental investments.
Related: Where Can You Find Reliable Cap Rates for Single Family Homes?
2. Multi-Family Rentals
As you can tell from their name, multi-family rentals are the multi-unit counterparts to SFRs. Despite the difference, they are also excellent for making money in real estate. Multi-family properties come in all shapes and sizes, ranging from a simple duplex to a 32-unit apartment complex. Regardless, they are suitable for long-term and short-term rental investment strategies.
Multi-family properties tend to be more profitable than SFRs. With multiple units, real estate investors can receive a lot more rental income. They also have very low vacancy rates, which were just 4.2% at the end of 2019. Multi-family homes are also perfect for house hacking. In other words, you can use one unit as a primary residence and rent out the others as rental units. When implemented properly, you get to live in your home for free. It also provides new real estate investors with the experience of making money in real estate from home.
Related: Single-Family Homes vs Multi-Family Homes: Differences and Similarities
The Best Way to Find Rental Properties for Sale
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3. Airbnb (Quarbnb) Rental Properties
Before the coronavirus pandemic, Airbnb investing in real estate was the go-to for many investors and the short-term rental business was thriving. While hosts have not been able to use Airbnb as usual, Airbnb has provided a program in response to the pandemic. The program, called “Airbnb Open Homes”, offers housing for first responders looking for residence during times of emergency. Airbnb hosts can make their investment properties available to first responders through the new Airbnb portal.
This opportunity is a great one for making money in real estate. Many of those dealing with the COVID-19 pandemic are searching for Airbnb rentals, nicknamed “Quarbnbs” to be closer to their worksites or to self-quarantine far from family while recovering and being treated. Airbnb has also provided a list of safety and cleaning protocols for hosts taking part in the program. Only full rental units, not shared ones, are eligible for participation. Hosts do not have to offer their rental property for free and will still have all fees waived by Airbnb.
Keep in mind that once the pandemic is over, forecasts point to a quick recovery for Airbnb businesses. Why? There will likely be pent-up demand for travel accommodations as people come out of quarantine. While no one can predict when this will happen, it’s smart to keep an eye on the developing situation with Airbnb to see if/when Airbnb investments will become hot again.
4. Real Estate Investment Trusts (REITs)
The previously mentioned ways of making money in real estate can require some type of managerial work. This next method, however, does not. By investing in real estate investment trusts (REITs), you can be making money with rental properties without even having to buy them yourself.
A REIT is a company, often private but sometimes public, that purchases, owns, and manages income properties. Instead of owning the investment property, a real estate investor owns a share of the REIT. REITs largely focus on commercial real estate such as shopping malls and senior housing. However, they can also revolve around large multi-family homes. REITs are a great option for making money in real estate for beginners. By investing in REITs, investors can make a big bang for their buck through a passive, stay-at-home investment strategy.
However, be sure that you understand all the happenings with the stock market and any REITs that are closely tied to it. Some REITs may not recover while others may make for great real estate investments during this time. Proceed with caution.
5. Real Estate Crowdfunding
Another way of making money in real estate is through real estate crowdfunding. This method allows investors to pool funds to invest in commercial real estate. Online crowdfunding sites, such as PeerStreet and Crowdstreet, are where investors and developers can connect. Like investing in REITs, real estate crowdfunding is a passive, hands-off strategy. The investment sponsor is the one who is responsible for the management work and distribution of profit to investors. This makes it particularly appealing in the US real estate market due to the novel coronavirus.
6. Real Estate Syndication
The last technique for making money in real estate is through real estate syndication. The principle behind real estate syndication is investors collaborating together to invest in rental properties that are typically above their financial capabilities. As a result, all investors involved receive a sizeable profit and an expanded portfolio. The real estate investors pool their resources, experience, and capital to purchase the investment property.
Real estate syndication involves two types of parties: the sponsors and the investors. Sponsors, or general partners, are responsible for the acquisition, reporting, and management of the rental property. Investors, or limited partners, simply supply the capital for the property. As a limited partner, investors can use real estate syndication as a passive strategy, one of the best.
The Bottom Line
In this blog, we’ve focused on the 6 best ways of making money in real estate. However, make sure that you review your finances to decide if now is a good time to invest in real estate for you.
For more on how to start making money in real estate, check out the Mashvisor daily blog.