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Making money in real estate is an endless topic that includes all the various types of real estate investments. There is land, apartment buildings, homes, commercial buildings, REITS, deeds, liens and much more. Whatever the type however, you’ll make your profits in some of the basic ways listed below.
Use this list to get yourself thinking of the possibilities.
1. Appreciation
Making money in real estate can be as simple as holding on and waiting. To really get the most appreciation in value, however, you should buy in an area where demand is growing faster than the supply.
2. Depreciation
Remember that after all the tax law changes, you still get to declare a loss for depreciation that doesn’t really exist. That can save you a lot at tax time, meaning more after-tax profit. To maximize this, buy property that has its value primarily in the buildings, because you can’t depreciate the value of land.
3. Loan Pay-Down
You gain equity with every payment you make. Get the lowest interest rate you can and more of each payment will go towards the principal.
4. Cash Flow
When you buy income property the right way, you not only have your tenants paying all the costs and paying down the mortgage loan, but you also have positive cash flow.
5. Buy Low
When you buy below market you get instant equity that will be converted into a profit when you sell. Offer a reason for the seller to sell low: fast closing, cash, assume some debts or liabilities, etc. Or just make a low offer. The seller may have his own reasons to sell it cheap.
6. Sell High
Clean it up nice, make it easy to buy, and find the right buyer to get top dollar. The next four on the list cover ways to create value, so you’ll get more when you sell.
7. Offer Financing
You can often get substantially more for a property if you offer financing. This is especially true if you let someone buy it with little money down. You can also get good interest on the loan.
8. Change Use
If there is a higher use for the property, you can convert it to make it worth more to the next owner. Sometimes this means making condos into apartments, or apartments into condos. Maybe converting a home into office space will get the biggest return.
9. Improve and Repair
Repairing anything that needs it is obvious, but you need to look creatively and carefully to find improvements to make. Concentrate only on those that will raise the value several times more than what they cost you.
10. Sell in Parts
In real estate, the parts are often worth more than the whole. For example, splitting off an extra lot to sell for $30,000 will rarely decrease the value of a home by that much, so you’ll make more money in the end.
Making money in real estate can be a wonderfully creative process. Just look at the sources of profits listed here, and think of how you can use a few of them on your next real estate investment.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.
