When it comes to making money, real estate has been and remained one of the top industries. And, contrary to the popular opinion, you don’t need huge capital to get started. Still, while a lot of money isn’t required to start making a profit, some knowledge definitely is. So, if you wish to learn about the basics of money making in real estate, you will enjoy reading this article.
Before we get started, it’s important to get some things sorted out. First of all, making money in any industry is difficult if you don’t know what you are doing, or if you aren’t familiar with the basic principles of that industry. Therefore, gaining some knowledge should be a priority.
Secondly, as we already mentioned, you don’t need significant capital. A couple of hundreds of dollars will be enough to open escrow, and that is all you’ll need. However, if this is the road you want to take, you should know that you’ll be dealing with flipping contracts, distressed properties, and lower-priced homes.
Lastly, many people are of the opinion that in order to purchase a property or secure a contract, they will need major assets. That simply isn’t true. Some comprehension of creative financing is what will come in handy, though.
How to Generate Income in Real Estate Trading
There are a couple of key strategies that you can rely on to make money in real estate trading. Depending on the strategy you choose, you will either generate an active income or passive income. Active income comes from flipping contracts, adding value, or doing renovations. On the other hand, you can generate passive income by buying and holding.
If you want to learn more about these strategies, be sure to keep reading.
1. Rental properties
Investing in a residential rental and holding on to it is one of the oldest and most common methods for generating income in real estate. Luckily, when it comes to rental properties, there is only one thing you should remember – location.
A good location is even more important than the condition the property is currently in. In fact, the location will help you increase the value of the property and find a long-term tenant in record time.
However, in order to make a down payment, you will need some cash. Luckily, that doesn’t have to be a lot. Look for positive cash flow – properties that have previously produced a steady income are always a great investment.
2. Flipping contracts
If you want to make money from real estate, but you don’t have much capital, you can flip contracts. Your goal is to find a motivated buyer and a distressed seller – and bring them together.
By doing that, you will be able to easily enter into a contract without worrying that you will get stuck while having to close escrow on the property. But, the tricky part is finding homes that are behind on their mortgages or empty homes.
3. Home renovations
The renovation flip market is booming, and everyone wants to get their part of the share. Still, although home-renovation flips look exciting and fun on TV, the reality is a bit different, especially if you are a beginner. In fact, if you select a wrong home, you could easily end up losing money instead of earning it.
Again, in order to succeed, you need to prioritize the location. An ugly house in a nice neighborhood is a far better choice than a nice-looking house in a bad neighborhood. Also, in order to make money, you need to predict how much the home will be worth after the renovations. To do that, you need to understand the potential value and the underlying costs.
4. Raising the value
The most common way to earn money in real estate is to raise the value of the property through selling. Depending on the type of property, you will use different ways to increase the value.
When it comes to raw land, the rise in value comes from developing the land, a.k.a. making it attractive to developers who will then build homes on it. Also, discoveries of valuable minerals can raise the value of raw land.
With residential properties, again, it’s all about the location. Neighborhoods with good schools, playgrounds, shopping malls, many transit routes, etc. have a higher value. The bad news is that you cannot control this. However, you can make some improvements to the home itself and thus raise its value. Bathroom and kitchen renovations are one of the most popular ways to increase a home’s value.
Lastly, if you are interested in a commercial property, you should know that the same principles apply here. Such a property will gain value for the same reasons as the previous two: location, improvements, and development.