Content of the material
How Does Real Estate Make Money?
There are generally four different ways to make money in real estate:
Increase a property’s value
Generate regular income through a property
Buy and hold residential real estate
Participate in investments that don’t require you to buy property
Before you get started, consider a few different things:
Your Risk Tolerance: All investments carry some degree of risk. In the real estate world, you’ll find investments that carry less risk and investments that carry lots of risk. How much risk are you willing to take on?
Your Local Housing Market: Some investments may require that you live in or nearby a housing market with ample real estate opportunities. If you don’t live by one of these dynamic markets, you may have to seek investments that don’t require you to buy property.
Liquidity: Most real estate investments are not “liquid.” In other words, if your personal finances take a plunge and you desperately need money, you may not be able to sell a property quickly or for a reasonable price. Certain real estate investments (mainly those that require you to buy property) may not be suitable for investors who don’t have stable finances.
Capital: How much money do you have to invest? Some investments require a huge amount of capital, while others do not.
Know-How: How knowledgeable are you about the real estate market? Have you received real estate training or not? With more education, you’ll be able to take on more types of investments.
Time-Commitment: How much time are you willing to put into your investments? Are you trying to create a passive income or launch a real estate career? You’ll find that some investments can be made part-time, while others require your constant attention.
By answering the questions above, you’ll have a better idea of which types of real estate investments are suitable for you.
[ Do you control your finances or are your finances controlling you? Register to attend our FREE online real estate class and find out how real estate investing can put you on the path toward financial independence. ]
4. Sell Wholesale
A fourth way to make money in Real Estate actually can require the investor to have cash, although it is not required.
This technique is by far the best and easiest way for new, inexperienced investors to make “quick” money in Real Estate. In fact, this is by far the best and easiest way for veteran and seasoned investors to make “quick” money in Real Estate.
Wholesaling is the art, and I use that word on purpose, of being able to accurately appraise the potential value of a property and buy it so low, you can quickly sell it for cash to another rehabber or end user who will make it their dream home, without EVER fixing a thing, regardless of how good or poor the condition of the property.
Now, you may say, I do not need cash for this strategy. I can simply Option the property for a wholesale price and then sell it to a rehabber or end-user. You are absolutely correct, but getting an owner to accept a wholesale price is rare.
You will make 100 wholesale offers to owners before one is accepted.
Where you will have much better luck is buying foreclosures from banks.
While a majority of your initial offers will still be rejected by banks, they are much more likely to accept a wholesale offer. They also will never allow you to Option the property. They only accept cash and will even require you to have Proof of Funds before they even look at your offer.
In some states, the crime of practicing real estate without a license either a misdemeanor or felony offense. In others, the law provides for enhanced penalties for repeat offenders. For example, the state of Kentucky penalizes engaging in real estate brokering without a license for the first time as a misdemeanor offense, while any subsequent acts are charged as felonies. (Kentucky Revised Statutes section 324.990.)
The states provide for various penalties when it comes to the crime of engaging in real estate without a license. A person convicted of this crime will face several potential punishments, though the severity of these will differ depending on the severity of the case.
Prison or jail. The primary difference between a misdemeanor and a felony crime is the potential length of any jail or prison sentence. Any crime where the potential maximum sentence is up to one year in jail is categorized as a misdemeanor, while one where the potential for a year or more in prison is possible is considered a felony. Depending on the state, a conviction for the unauthorized practice of real estate can lead to maximum penalties ranging from up to a year in jail or four years or more in a state prison.
Fines. In addition to or apart from any jail or prison sentence, courts can also impose a fine if you are convicted of the unauthorized practice of real estate. Fines differ widely, but misdemeanor fines are typically up to about $1,000, while felony fines can reach $5,000 or more.
Probation. Courts may also order probation as part of a criminal sentence. When a court orders probation, it allows the convicted person to serve a sentence, typically 12 months or longer, outside of jail or prison. During that time the person on probation has his or her liberties restricted, and must comply with various court orders or conditions of probation. These conditions typically require the probationer to pay all required fines, court costs, and restitution; as well as find or maintain employment, refrain from the further practice of real estate, not engage in any other crimes, and regularly report to a probation officer. A person on probation who fails to meet all the required conditions will face additional penalties, such as higher fines, extended probation periods, or may even have his or her probation revoked and end up serving an incarceration sentence.
Restitution. If, during the course of acting as a real estate agent, you charge others for your services, a court will likely make restitution a part of the sentence. When you are ordered to pay restitution you have to compensate those who were the victims of your crime for any damages you caused. You must pay restitution in addition to any applicable court costs and criminal fines, and must also do so as a condition of your probation.
1. Long-term residential rentals
One of the most common methods for making money in real estate is to leverage long-term buy-and-hold residential rentals. People will always need a place to live, and that means getting involved with rental properties. You need to do the proper amount of due diligence to source your property by keeping three principles in your mind: location, location, location.
Yes, you’ve heard it before, but location is everything when it comes to real estate. Not only does this apply for actually an increased asset value over time, but also in your ability to quickly rent that property to a long-term tenant. When you’re considering long-term residential rentals, look for a great location. That’s more important than the current state of the property itself. In fact, run-down homes in great locations are one of the best investments you can make.
This involves a more traditional approach to making money in the real estate market. It means buying a property with some cash on hand to make a down payment and then holding that property for the long term. Depending on your personal situation, you can easily grab that property for a very low or even no down payment. That’s especially true if this is a pre-existing, income-producing property.
If there’s positive cash flow in a residential rental, then it could be a great investment. However, you’ll likely not find that too easily, unless the current owner is unloading for personal reasons due to a divorce or other need to liquidate that property that necessitates having some cash on hand.
6. Vacation rentals
Vacation rentals can present a lucrative path to profits in the real estate marketplace. Not only can you make some side hustle income from vacation rentals, but you could potentially make a significant amount of money and build up a substantial passive income stream if you’re in a highly-trafficked tourist locale. Places like Los Angles, Miami and other tourist hotbeds are well known for having high demand for these short-term rentals.
I’ve long been a firm believer in the vacation rental market. The best part? You don’t even need to own the properties to make money. Some of the world’s most successful property management companies that specialize in vacation rentals don’t actually own the homes but do provide a high-end consumer experience.
How do you participate? Leverage existing relationships with owners in your area. Network with others. Build bonds. Create systems. Ensure the upmost satisfaction. Go above and beyond for anyone staying at the homes you manage. And see how you can help to take some of the time and stress off of the present owners’ existing rental businesses. If you have a property, list it on a site like Airbnb, HomeAway or FlipKey before managing vacation rentals for other owners.
2. Property Inspections
Millions of property inspections are completed every single year for a wide variety of reasons. The most common reasons include verification of occupancy and/or damage assessments. These inspections do NOT require a real estate license and can be a great way to get your feet wet in the industry while earning extra cash on the side.
Quick Start Tip: search your local job boards for “property inspector” to see what openings are available in your area.
In cases where people hold themselves out to be properly licensed real estate agents or brokers, the crime of practicing real estate without a license occurs in each separate transaction. For example, if you have a real estate license in one state, move to another and fail to apply for real estate license in the new state, you cannot act as a real estate agent. If you choose to do so, each transaction you engage in as someone else’s broker or agent is considered a separate offense.
3. Long-Term Rentals
More traditionally, long-term rentals are a common form of investment for homeowners. A long-term rental is typically 6 months or more – most commonly one year – and typically requires less upkeep on your day-to-day. Low inventory, excessive student loan debt, and the ever-growing millennial cohort create strong indicators for a strong and growing US rental market.
Your tenant signs a lease and is committed to paying monthly throughout the duration of the contract. This means you receive a stable flow of income for a set period of time, without having to worry much about the house unless it requires major repairs that the tenant is not responsible for per the terms of the contract.
6. Commercial Property Rentals
Commercial real estate is one of the fastest ways to make money in real estate. This means flipping properties and developing them, adding value to properties in order to increase their net incomes through renovations and upgrades. You’ll also consult on projects that might take more seasoned real estate investors to see to fruition.
What Is Being a Real Estate Agent Really Like?
While often billed as a “flexible job with unlimited earning potential,” – this may be simplifying how hard agents work to be successful.
You could land listings right away and close deals without much effort. Or you might work for months without any leads or a sale.
Understanding there’s a lot more to being an agent than showing houses and signing contracts is critical.
It’s better to think about selling real estate as a part-time career you plan to do for years rather than a side hustle.
You’ll be investing a lot of time and money upfront to earn real estate income and save money as an agent.
If you enjoy taking care of clients, networking with colleagues, and researching and marketing properties, a part-time real estate career might be an excellent fit for you.
But remember, you’re working on commission, and there won’t be a paycheck without sales.
Also, keep in mind you’re probably going to be working nights and weekends. Be sure this aligns with your other life goals and interests.
Even though you‘re considering this as a part-time job, you may have to put in a lot more than part-time hours some weeks.
Finally, clients buying and selling houses are often under a lot of stress. You’ll have to be confident, flexible, and empathetic in your work with them.
The best (and most successful) full-time agents or side-hustle real estate professionals have those traits, along with being self-motivated, honest, and dedicated.
Now that you’ve read this article on how to make money in real estate, here is a quick summary of what we covered. There are four main money making strategies for real estate investors: buy a property and wait for it to appreciate in value; rent out a property to tenants or businesses to generate cash flow; invest in residential properties; invest in real estate projects or find other work in the industry. Each of these strategies combines numerous real estate basics from fix-and-flip investing to lending your own capital for investment deals. Some investors may find they don’t even need to own property to make money on real estate. No matter which option you choose, know that there are numerous other paths waiting for you to make money off real estate.
Want to learn how to take advantage of the current opportunities in the real estate market?
Whether you’re brand new to real estate or have closed a few deals, our new online real estate class covers everything you need to know to help you get started. Expert investor Than Merrill explains the best real estate strategies for today’s real estate market to help get you on the path towards a better financial future.
Register for our FREE 1-Day Real Estate Webinar and get started educating yourself on how to invest in today’s real estate market!