6 Solid Strategies to Make Money in Real Estate

Did you know there are dozens of ways to make money in real estate?

You could decide to buy investment properties, deal in foreclosures, buy tax liens, buy and sell mortgages, etc.

While this list could go on for some time, the area that’s easiest for most people to begin with is buying single-family homes.

Once you’ve gained some experience in this area, you may then feel confident expanding into some of the other real estate investment options.

By understanding the six ways to profit listed below, you should see clearly the benefits you can gain through real estate investing.

This is the easiest way to make money in real estate. The only thing required is for you to purchase a rental property and wait. Over time, as the value of the home rises, you can eventually access the equity that builds up over time.

The difference between your mortgage balance and the current property value is your equity. For example, if your mortgage is $100,000 and your investment home is worth $150,000, you have $50,000 of equity money that you can access tax-free.

While appreciation is easy money, remember that nothing goes up forever without a correction occurring. This is a long-term strategy. If you have the patience to buy and hold for a time period of fifteen or more years, your investment should turn out positively for you.

As they say in all business circles, “Cash flow is king.” Since your expenses must be paid monthly, you need to have cash coming in to your bank account each month. As you purchase multiple properties, you should see your monthly cash flow rise.

When your tenants pay you rent, the difference between the rental payment and your expenses is your monthly income. Understanding this helps you make a wise upfront decision. If your mortgage, insurance, taxes, and property management fee will be higher than the rent you can expect to receive, you may want to look for another deal.

One aspect to rents often overlooked by real estate investors is the long-term outlook. As you pay off your mortgages on your investment properties, your monthly rental income can be the money you retire on.

The added advantage is that your tenants actually paid your mortgages off for you through their rental payments. Thirty years from now you’ll be happy you decided to make money in real estate.

Uncle Sam allows you to declare a loss known as depreciation at tax time. Combine this with the varied tax credits, deductions, and government programs associated with real estate, and the tax savings frees up additional money for you to make more purchases with. Always consult a tax professional at tax time to ensure you benefit properly from depreciation.

This is one of the most commonly used methods to make money in real estate because it results in a quicker upfront profit. The idea is to identify a distressed property needing repairs. Subsequent to purchasing the property below market value (based on the anticipated value after fix-up) and making the necessary repairs, it’s not uncommon to re-sell the property for a $15,000-$25,000 profit.

The drawbacks with this method are the fact that many novice investors pay too much for the property, underestimate the fix-up cost, or suffer when they can’t sell the property in the time frame they had planned for.

While fixing, repairing, and selling a property can be a wonderful way to make money in real estate, be sure to thoroughly research and plan your purchase.

Similar to the preceding strategy, the difference here is that you repair the property and then keep it as a rental. With this method you gain rental cash flow and appreciation profits while holding the investment. Another variation is to never sell, keeping the property as a part of your retirement plan.

While not as common as the other real estate methods previously discussed, this is one that can help you turn a nice profit. If you happen to purchase a property with enough size to separate into more than one lot, you can sometimes sell the parts to different buyers. Many times the value of the parts comes to a greater figure than what it cost you to make the purchase initially.

This strategy is more involved because you now need to go to your city or county and find out about zoning and other such issues.

If you decide it’s your destiny to make money in real estate, the use of one or more of these six methods will guide you as you work toward realizing your real estate goals.