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SHOW NOTES FOR EPISODE 472: BEST OF FUN FACTS FRIDAY – A BEGINNER’S GUIDE TO MAKING MONEY IN REAL ESTATE
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When it comes to investment, real estate has proven to generate some of the highest returns. However, many people are unsure about how to get started. If you are a newbie investor, you can invest in income property in multiple different ways- directly, indirectly, with a bad credit score, with no credit, or even with no money- and STILL make money. In today’s podcast, Bill shares some of the more effective real estate investment strategies to consider.
Introduction
When it comes to investment, real estate has proven to generate some of the highest returns. However, many people who are unsure about how to make money in real estate are still wary about investing in today’s US housing market. Some find it too complicated, while others think that they need a lot of money to get started. Both of these are valid reasons, but not entirely true. If you are a newbie investor, you can invest in income property in multiple different ways- directly, indirectly, with a bad credit score, with no credit, or even with no money- and STILL make money.
If you are a first-time real estate investor or considering getting into real estate investing, here are some real estate investment strategies to consider:
1. Long-Term Rental Properties
As a new real estate investor, you can make a living through owning residential property (this can be houses, multifamily/apartments, condos or townhomes). This is one of the best ways to make money in real estate. Since people will always need a place to live, rental properties will always be in demand.
So, why exactly should you consider investing in real estate rentals? Here are a few reasons:
- Steady cash flow – Investors can enjoy long-term passive income from their rental properties. This cash flow is more predictable and stable compared to other forms of investment.
- Tax benefits – Most governments offer tax breaks for investment property depreciation, legal fees, maintenance and repairs, property taxes, travel expenses, and insurance. Real estate investors also get to enjoy reduced tax rates for long-term investments.
- Appreciation – Real estate usually appreciates in value over time. This means that your investment property will be worth much more in the next 20 years.
- Hedge against inflation – Inflation actually works in favor of long-term rental property owners. When the cost of living rises, so do property values and rental income.
- Control – The best thing about owning a rental property is that you become your own boss. You have total control over what property you will buy, how much you will charge per month, which tenants will live in your rentals, and who will manage the properties.
The first step in how to make money in real estate rentals is to ensure that the location is strategic. The location of your multi-family home, condo, single-family home or apartment is actually more important than the condition of the investment property itself. This is why a distressed house in a great location can turn out to be a very lucrative investment. Combined with the buy and hold real estate investment strategy, a long term rental property in a good real estate market will generate positive cash flow for a long time to come.
2. Fix ‘n Flip
The fix-and-flip investment strategy is one of the proven ways of making money in real estate. Thanks to the popularity of shows such as ‘Extreme Makeover: Home Edition, and others’, the house flipping market has experienced a massive boom. Fix-and-flip basically involves buying a distressed home below market value, renovating it, and then selling it at a higher price. However, navigating the waters of this market can be very tricky if you don’t have the experience or knowledge. If you underestimate the cost of repairs and fixes, you might end up losing money instead. This is why it is important to conduct a proper home inspection to know what you are getting yourself into.
3. Wholesaling
Flipping contracts is a strategy that you can use if you’re wondering how to make money in real estate without spending much. All you need to do is find a motivated buyer and a distressed seller, then bring them together. You will first negotiate with the seller and sign a contract, then sell the contract to a buyer at a higher price. However, this real estate investment strategy can be tricky if you don’t locate a motivated buyer fast enough.
4. Short Sales
Short sales are one of the most overlooked strategies when it comes to how to make money in real estate. A short sale often happens when a property owner has defaulted on his/her mortgage, but the home is yet to go into foreclosure. Since the property is being sold for less than is owed, all parties involved must agree to the transaction. This can be a great chance to make good returns without having to make extensive renovations. However, you might have to make the full payment in cash. The good news is that you can negotiate a relatively low price since the bank is desperate to get rid of the property.
5. Short Term Rentals/AirBNB
You cannot talk about how to make money in real estate without mentioning short-term rentals and vacation rental properties. With more and more travelers looking for alternative accommodation options to hotels, the demand for short-term rentals and vacation rentals has grown significantly. Having a vacation rental property in a popular travel location can, therefore, generate lots of passive income for real estate investors. Platforms such as Airbnb, Home Away and VRBO have made it easy for property owners to connect with renters. However, you should note that not all cities are Airbnb friendly. So you have to be sure to check your city’s regulations and laws before placing your property on Airbnb.
6. Real Estate Investment Trusts (or REITs)
If you are wondering how to make money in real estate with no license, REITs is your answer. While you typically don’t have to get a license for buying an investment property, some professional investors do as it gives them easy access to the MLS. But with REITs, you’re not directly buying or selling real estate. And if you don’t have enough cash to buy property, putting what money you have in a REIT is a good option. REITs are similar to investing in mutual funds or stocks. A REIT basically pools money from various individuals and invests it in different income-producing properties. This could be hotels, retail space, office buildings, commercial real estate or apartment buildings. Investors are then paid dividends when the investment properties generate a profit.
7. Syndications
You can invest in top real estate property wthout the worry of managing. As a LP (Limited Partner), GP (General Partner) or Sponsor, you can make great returns by investing in someone else’s high return property. And you can get a big pay-out when the property is sold
8. As a Lender
As a Hard Money Lender or private lender, you can also benefit from the great real estate profits without the hassles of managing the properties. As a hard money lender, you make short term loans to real estate investors and collect high interest. As a private lender, you can creat a loan for as long as you want. You can do this on your own or through lending platforms like LendingClub.com.
9. Notes/Deeds/Leins
Investing in notes or deeds of trust is in an excellent method to generate significant and consistent streams of cash flow. It is a truly passive form of real estate investing. Basically, in purchasing and deed or note, you become the bank. You collect the monthly payments from the borrower and if the borrower doesn’t pay you, you can take possession of the property because you hold the deed. A Note is a debt owed and a lien is a security instrument that enforces the note. A lien means you can’t buy or sell that property without dealing with the holder of the lien. A note just describes what you owe.
10. House Hacking
House hacking is a great way of how to make money in real estate. This is an investment strategy that involves purchasing a multi-family home (fourplex, triplex or duplex) so you can live in one unit and rent out the rest. This allows you to generate enough rental income to help meet your expenses. House hacking basically means that you get to live in your residence free while still making some money. It also helps you get a feel of how to manage rental property as a landlord. House hacking is also a great way of how to make money in real estate with no money. This is because you can qualify for an FHA loan with a 3.5% down payment.
In Conclusion
Those are just 10 great ways to make money in real estate but there are more. As you can see, you have plenty of options. There are even ways of how to invest in real estate with no money! There really is no reason to not get started in real estate investing today.
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