There are many ways to make money from investing in real estate. There are various types of properties in either the residential or commercial category. As well, there are several creative ways acquire properties. But today I want to discuss three basic ways to make money from investing in real estate with single family residential homes.
Keep in mind, this is not about a "get rich quick" scheme. This is about having a plan and then implementing the plan based on your investment goals. It's done with persistence, patience, and one step at a time. It's about putting your money to work and letting it work for you over time.
There are endless ways to make money from investing in real estate -- if you are ready and willing to accept the challenge.
Are You Ready?
1. Buy and Live
When you are first starting out as a Real Estate Investor you may not have had the opportunity to build capital. By buying a home as an owner-occupant with the intent of remodeling the home and then reselling it at a later time for a profit is an ideal place to start.
As an owner-occupant buyer you'll benefit from many financing and minimum down payment programs that are available to you. If you are a DIYer you can use your own sweat equity to remodel your home to increase it's value. If you'd rather let a contractor handle making the improvements to your home you can then take advantage of the 203(K) rehab loan that is offered only to owner-occupants. The 203(K) rehab loan is an FHA program that covers the cost of the home improvements plus the cost to acquire the home with one mortgage loan. The stipulation with a 203(K) rehab loan is that you have to keep the home for at least a year.
Another benefit to the buy and live way of making money from real estate is the exclusion of capital gains. Per the IRS website: if you have owned and used your home as your main home for at least two years you may be eligible to exclude the gain from the sale of your home. Your tax professional can help further with any tax questions you may have.
The Buy and Live way of making money is a sound way to build capital over time.
2. Buy and Flip
If you are addicted to shows like Flip or Flop, Good Bones, or Rehab Addict (as I am) to name a few, and you want to make money from investing in Real Estate with the buy and flip way, there are several things to know.
The oldest cliche' in real estate is - location, location, location, which still holds true especially when you want to make money with the buy and flip way. Look for areas that are up and coming. Desirable areas that are close to schools, shopping and an easy commute to work. Within the area are desirable streets and lot locations. You'll find that an interior lot is always more desirable than a lot that backs to a busy street. When looking to make the most money from the buy and flip way remember that anything in the house can be changed, but you can't change the location.
Put together a team -- to make money from buying and flipping it's important to have a team in place. A Real Estate Professional who will help you acquire the home at a discount, who knows the market and can give you the price you can resell the home for after remodeling, and who will market the house to sell quickly. A Mortgage Professional who is knowledgeable about short term financing programs for investors. A Real Estate Attorney. A crew for demolition and/or clean out. Contractors to put it all back together.
Now you're probably saying to yourself "I can do the work myself" you can if you have the time, but going at it alone is not a good idea. You've heard the saying "time is money" the longer the house is in the construction phase the more it will cost you.
Which brings me to; know your costs - when you are first starting out and are unfamiliar with the costs involved, ask your contractors. This is why it's important to have a team of contractors in place, they can give you a ball park idea of what a kitchen or bathroom remodel with cost, or the cost of a new roof. Take the number that they give you and always add a cushion, better to over budget than to not budget enough.
The Buy and Flip way of making money can have big payoffs, if done right.
3. Buy and Hold
This is the long-term investment way to make money that will allow you to build your real estate portfolio. It can also be used together with either the "Buy and Live" or "Buy and Flip". Let me give you an example: let's say you've sold your second "Buy and Live" and you've made a nice profit from both the first and second home. You now have a 20% down payment to purchase your first investment property, and you're on your way to building your real estate portfolio -- it all starts with one.
Although I make it sound simple, the key to the buy and hold way of making money is knowing the market. This is where your real estate professional is an invaluable asset. He/She will let you know the property values and rental rates in the area that you are looking to invest.
Also, when you are looking to invest in single family residential properties, don't forget about new construction. The ideal time to invest in new construction using the "buy and hold" way is when you see the trailer on the construction site, aka "pre-construction" pricing. Remember with any one of the three money making ways, you'll want to buy the home at a discount price.
The Buy and Hold way to make money from investing in real estate is a great way to build cash flow and your net worth.
I hope I've given you better understanding of the 3 basic ways to make money from investing in real estate. Each one is a place to start, but only you can decide which one best fits your investment goal.
Additional valuable resources:
- 14 Home Renovation Mistakes to Avoid by Anita Clark
- Thinking of becoming a landlord? by Kyle Hiscock
- 6 Rehab Mistakes to Avoid on Massachusetts Real Estate News
- Buying a Home With a 203(K) Rehab Loan by Paul Sian
- Smart Renovations by Kevin Vitali
- How to Make Money in Real Estate - 35 Ideas from the Pros via FitSmallBusiness.com
This Real Estate article "3 Basic Ways to Make Money from Investing in Real Estate" was written by: Maria Mastrolonardo. Maria is a Realtor with RE/MAX of Naperville, who has been selling Homes in the West Chicagoland area including Naperville, Wheaton, Lisle, Downers Grove, Aurora, and Winfield for 20+ years. Need help buying or selling a home? Call or Text Maria at (630) 248-6077 or email her at email@example.com.