Making money in real estate takes the right systems and a little determination.
But if you put in the work, you stand to make a good amount of cash while diversifying your portfolio.
We’ve spilled a lot of ink on the topic here at I Will Teach—but there are a lot of different ways that you can make money with real estate.
When you break it down, though, these methods fall into two categories:
- Appreciation: When you purchase property, let it appreciate in value, and then sell it at a profit.
- Income: When you purchase property and use it as a consistent source of income (typically by renting it out).
Any way of making money in real estate involves those two categories. Sometimes, both ways can be used!
If you’re worried about having to purchase a house and putting in the sweat equity to try and flip it or turn it into rental property, don’t worry. There are other ways you can make money off of real estate that don’t involve actually purchasing property.
We’re going to break it down for you in two ways: The easy way — and the hard way.
How to make money in real estate: The easier ways
The easier ways to make money in real estate all have to do with investing in the market.
That means no home purchases. No worrying about finding people to rent to. No trying to boost your AirBnB ratings with free beers for your guests.
Instead, we’re going to look at some simple money systems to get you there.
#1. Real-estate funds
Real-estate funds are mutual funds. You pool your money with other investors into an actively managed fund. In this fund are different companies that actively manage properties.
Real-estate investment funds also contain direct investments into real estate properties as well.
“Real-estate funds generally increase in value through appreciation and do not provide short-term income to investors […],” says Stuart Michelson, a finance professor for Stetson University in Texas. “Real-estate funds gain value mostly through an increase in value of the assets.”
If you’re interested in investing in real-estate funds, check out our article all about how mutual funds work to learn how to start.
Once you’re ready to invest, you probably want to look for a solid fund to invest in. Look for a broad, well-diversified, low-fee fund at the brokerage that you’re using.
#2. Real-estate investment trusts (REIT)
Real-estate investment trusts (REIT) are a lot like real-estate funds. You still pool your money together with other investors into a fund. The difference is that REITs are managed by a company (or trust).
Typically, your investment goes towards purchasing and managing different properties for profit. This falls in the “income” basket from above since the properties are the source of income.
And REITs come in different shapes and sizes. Some REITs focus on retail buildings like malls and shopping centers. Other REITs focus on hospitality like hotels and motels. So you have a lot of variety in what you want to invest in.
REITs are a very popular way to get started in real-estate investing. Especially if you don’t want to start purchasing properties.
Overall, they’re a low risk way to start investing in real estate. If you’re looking for a good fund to start with, we suggest Vanguard Real Estate Index Fund Admiral Shares (VGSLX).
It’s a solid fund that holds properties such as office buildings and hotels. Plus, with an expense ratio of 0.12%, you don’t have to worry about being nickel and dimed for fees.
#3. Online real-estate investing platforms
You might have seen ads for these around. They’re web platforms and mobile apps that allow you to start investing in real estate digitally.
The way they work is simple: The apps connect you with real-estate managers looking to purchase or invest in properties. In exchange for your capital, you could get a cut of the profits (dividends) if they earn money.
It should be noted that since you’re going to be investing in single property projects, the risk is much higher. After all, you won’t be as diversified as you would be if you invested into a fund of properties.
But, if you have your financial house in order (automated your savings, investing regularly, etc), there’s no problem with investing 5% – 10% of your portfolio into projects like these.
If you’re still interested, here are a few good places you can get started:
Also keep in mind that many of these platforms will require that you’re an accredited investor. That means you need a new worth of at least $1 million or have earned over $200K for the last two years.
How to make money in real estate: The harder ways
The following are more difficult ways to make money in real estate.
The reason: You’re actually going to have to actually purchase property for it. That means coming up with the initial capital (five to six figure range) and putting in the sweat equity to renovate the property.
But that doesn’t mean that it’s not right for you. You just need to make sure you’re ready for the responsibilities of owning the house.
If you think you’re ready, here are a few good ways to get started:
#4: Renting out property
This method seems straightforward: Purchase a piece of property, rent it out for income, and watch your bank account grow passively while you sip mojitos on a beach.
Before you book that flight to Cabo, you should know that buying real-estate can actually cost much more money than you initially thought.
Consider this: When you purchase a house and rent it out, you not only become a landlord but also the repairman, renovator, electrician, gardener, and a million other things.
If a roof starts leaking at 2am, you’re going to be on the hook to fix it for your tenants.
These types of things are known as “phantom costs.” They’re the unseen expenses such as repairs and maintenance that many hopeful homeowners don’t take into account when they purchase property. Doing so could end up costing them a fortune in the long run.
However, there are some bright sides to renting out property. Since most mortgages are fixed, you can make more money each year to pay it off as you raise rent.
And depending on the market, you might be in a location where there’s high demand for living space. That means you can charge more and make more as a result.
Interested in learning more? Check out our article on the 5 steps to buying a house.
#5. Short-term room rentals
Have a spare room in your apartment or house? Rent it out for short-term rentals!
Or if you’re really enterprising, you could purchase a home or apartment and rent it out for short-term rentals.
The best part: This method doesn’t even require you to purchase property. You could use spare rooms you have in your apartment that you’re renting.
With websites like AirBnB, your spare rooms can turn into money-generating machines. Of course, there are a lot of elements involved to make it a success for you.
You have to make sure you’re in a good location. That means being in an area where there will be a regular draw of customers (tourist destinations, sporting events, etc).
You also want to make sure you have an attractive listing. That means getting good photos of the room and crafting the listing with the right words to hook people in.
For more on how to get started with Airbnb, here’s the official how to article from the company itself.
#6. House flipping
Flipping properties is when you buy properties and sell them at a higher price (i.e. flipping).
Of course, there’s a little more to it than that. For one, house flipping typically requires that you renovate and make repairs on the property. This could range from very big renovation projects or small fixes here and there.
That means you need to hire contractors to get the work done for you — which can be expensive. You could take the work on yourself but that’s going to take time, effort, and a skill set you might not have.
House flipping becomes much harder if you don’t devote yourself to it full time too. So if you have another job, you might find it difficult to get away and address issues with your house.
You still have the potential to earn a lot of money if you do it right. But you need the resources and you need to be in the right market in order to make some cash.
My advice: Consider house flipping if you have a network of trusted contractors to rely on. If you don’t, you might find your time and money get away from you faster than you can say “flip or flop.”
More Resources on Real Estate
You can make money in real estate with the right knowledge and systems. To learn more about this, be sure to check out our very best resources on the topic below:
- Real estate investing: The myths, facts, and ways to get started
- The Real Scoop on Real Estate (the first of a 7 part series)
- Don’t buy a house without asking yourself this question
- Real estate is an overrated investment
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