Four Ways You Can Make Money in Real Estate

4 Ways To Make Money In Real Estate Investing

  1. Online Real Estate Investing Sites
  2. Lease With an Option to Buy
  3. Option a Property
  4. Sell Wholesale

Before I get started, let me say I am only going to give an extremely basic explanation of these ideas. 

I could easily write a book on each one alone, but here are the bare bones to investing with no money or credit. Here’s another great read from Jeff on the best short-term investments out there, so check it out as well!

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10. Rent Sections of Your Home

You don’t necessarily have to purchase separate properties to benefit from having rentals. Try a method called “house hacking,” which basically means renting out a portion of your property to offset your own living expenses. Make sure to check your local regulations before trying this hack as some areas have zoning restrictions that prohibit renting out portions of your property.

For example, you could purchase a two-bedroom condo and rent out one of the rooms. Alternatively, you could purchase a multifamily property, live in one of the units, and lease out the others. If you’re looking to build your real estate portfolio with minimal upfront costs, house hacking is a great way to gain experience with landlords and property management.

Airbnb listing for a private room in a shared home

Airbnb listing for a private room in a shared home

You can even use house hacking to create a short-term rental experience. List your room or space as a “shared home” to open it up for short-term visitors. Short-term rentals can usually charge a higher per-night fee, but keep in mind that you aren’t guaranteed bookings. Make sure to list your space on Airbnb to generate a higher level of traffic and start gathering reviews.

Pro tip: If you don’t have any space inside your home to rent out, think about building a separate living unit or accessory dwelling unit (ADU) on your property. If you have land, you can purchase or build a small one-bedroom apartment and make your investment back quickly with renters. Before hiring a contractor, make sure you’re familiar with the laws and restrictions in your state.

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. 

4. Contract flipping

One way that you can make money from real estate without having to put up very much capital or credit is to flip contracts. All you have to do is find a distressed seller and a motivated buyer, then bring them together. While locating a distressed seller might seem difficult, Clothier has systemized the entire process for doing this. The trick with contract flipping is to identify the distressed seller and locate a ready-to-go buyer.

By bringing these parties together, you’ve cut out the need to go hunting for a buyer after you’ve entered a contract. That situation presents more risk. Instead, by locating the sellers and the buyers beforehand, you can easily enter into a contract with the confidence that you won’t get stuck having to close escrow on the property. 

To do this, you have to be able to identify either vacant homes or homes that are behind on their mortgages. That’s the tricky part. You’re effectively trying to find distressed sellers, but homes that are already vacant are primed for an opportunity like this. 

2. Real estate investment trusts (REITs)

If you want to wade into real estate, investing in a real estate investment trust (REIT) will provide exposure to the market without the time and cost commitment of buying your own property. 

REITs are companies that own, operate, or finance properties and real estate ventures. Like mutual funds or exchange-traded funds, they own not just one, but a basket of assets. Investors purchase shares of a REIT and earn a proportionate share of the income produced by those assets.

Equity REITs, the most common type of REIT, allow investors to pool their money to fund the purchase, development, and management of real estate properties. A REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls. Ninety percent of its annual earnings must be distributed to the investors as dividends.

One big selling point of REITs: Most of them trade on public stock exchanges. So that means REITs combine the opportunity to own, and profit from, real estate with the ease and liquidity of investing in stocks. 

Geared towards generating income, usually from rent and leases, REITs offer regular returns and high dividends. They also appeal to investors because of the unique way that they are taxed: REITs are structured as pass-through entities, meaning they don’t pay corporate tax. This effectively means higher returns for their investors. 

If you want to keep your investment liquid, stick to publicly traded REITs (a few REITs are private ventures). You can buy shares through a brokerage firm, IRA, or 401(k). 

4. Alternative Real Estate Income

You can still make money in real estate even if you don’t have the capital to purchase a property. There are several ways you can invest your money in real estate projects and receive your fair portion of the profits.

Here are some of the ways you can make money in real estate as a lender.

  • Real Estate Investment Trusts (REITs): In a real estate investment trust, the owner of multiple commercial properties sells shares to investors. If you buy shares, you’ll be entitled to dividends generated by the profits from each property. It’s a great investment option if you don’t have a lot of capital to invest.

  • Mortgage Investment Corporations: Mortgage investment corporations (MICs) are similar to REITs, but they hold entire mortgages. You’ll get paid interest that’s generated from rental payments at each property.

  • Real Estate Investment Groups (REIGs): Real estate investment groups are private groups of investors with their own unique structuring. These are typically suitable for only seasoned investors.

Some other ways to make money in real estate include:

  • Real Estate Options:

    You pay a premium to buy a property during a specific period, at a predetermined price. Then, you’ll try and find investors who are willing to pay more for the property. Essentially, you’re earning a real estate commission, but the risk is higher (although the returns can be a lot higher if done successfully).
  • Short Sales:

    A short sale is when you purchase a property from a lender who’s behind on the mortgage. This is a complicated transaction and not recommended for beginning investors.
  • Real Estate Agent:

    Real estate agents connect real estate buyers and sellers and earn commission on transactions.
  • Property Manager:

    You can start a business managing commercial and residential properties for other real estate investors.

Long story short: there are plenty of ways to make money in real estate!

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.

Final Thoughts

You can make money from real estate in countless ways. But start with the ideas above as you explore how to make money in real estate investing.

If you don’t know where to begin, try investing $10 in Fundrise or Groundfloor to start building a real estate investment portfolio. Everyone has $10, and just the act of creating an account and investing a few dollars will help you start down the path of making money with real estate.

You can scale up from there as you see fit, but the important part is taking the first step.

Which ways to make money with real estate appeals to you the most? Why?

6. Invest in your own home

Finally, if you want to invest in real estate, look closer to home — your own home. Homeownership is a goal many Americans strive to achieve, and rightfully so. Residential real estate has had its ups and downs over the years, but it generally appreciates in the long-term.

Most folks don’t buy a home outright, but take out a mortgage. Working to paying it off, and owning your home outright, is a long-term investment that can protect against the volatility of the real estate market. It’s often seen as the step that precedes investing in other types of real estate and has the added benefit of boosting your net worth, since you now own a major asset.

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7. Refinance Your Mortgage

If you have a mortgage on your investment property, you may be eligible to refinance it. Whether you refinance to take advantage of lower interest rates and save money, or you tap into the home’s equity and use the cash to invest in more real estate, you can use refinancing to your advantage.

If you lower your payment, you open up your budget, allowing you to invest more in the home, possibly making renovations to inject equity into your home. You can do the same if you tap into the home’s equity, using the cash to reinvest in the home, increasing its value.

7. Hard-money lending

Hard-money lenders provide short-term loans to people who normally wouldn’t qualify for those loans. In order to participate in hard-money lending, you’ll need some capital behind you. These are loans that are often at high interest rates because they’re for very brief periods. To close your first deal, you could turn to a hard money lender. If you have what you feel is a “sure thing” but lack the capital, this could be your best bet.

You could also become a hard money lender, but you’ll need some capital. This likely isn’t going to be the first way you start out making money in real estate, but as you build your network, capital and a solid portfolio of deals, you could provide these bridge loans and make a great rate of return.

Even if you lack an enormous amount of capital, as long as you can successful identify the right deals, provide a small amount of money and generate a high success rate, you can likely find investors to come on board without much difficulty. The interest rates here make sense. There’s more risk but also more reward. It can be a way to keep your cash fairly liquid and generate a nice profit in the short term without having to wait years and years for those returns to materialize.

1. Increasing Property Value

The most common way to make money in real estate is through appreciation. Appreciation is when a property grows in value.

You might purchase a property for $400,000, and over the course of 10 years, it appreciates to a value of $500,000. Sell the property, and you’ll have profited $100,000.

Most properties tend to appreciate, and that’s why real estate is such a popular industry for investors. There’s an excellent chance that your property will eventually be worth more than what you bought it for.

Let’s talk about land first. “Land” is any property that has few or no existing structures. Land tends to appreciate for two reasons:

  • Development: Land may appreciate if you construct a house or commercial building. Or you could refurbish structures that are already on the land.

  • Natural Resources: If you discover gold or oil on your land, it will almost certainly skyrocket in value. You can also sell land rights to companies that wish to harvest resources off your land—typically, you can earn a percentage of whichever resources are collected.

Residential and commercial properties appreciate for three main reasons:

  • Location: This is the main reason residential properties appreciate. Properties are more likely to grow in value if they’re located by schools, commercial centers, scenic areas, or popular destinations.

  • Development: A property will appreciate if the surrounding neighborhood sees new developments or redevelopment (but a property may also decline in value if the neighborhood decays).

  • Improvements: A property may appreciate if significant building improvements are made. This is the main idea behind fix-and-flip investing.

Inflation in Property Value

Inflation in Property Value

Don’t forget to account for inflation—how prices increase over time. Inflation will cause your property to be a little less profitable than what you’re selling it for.

For example, your property may have appreciated by $200,000, but the average home price may have increased by $70,000 over the same period.

Keep this in mind when you’re trying to calculate your returns on a prospective property.

12 Ways to Make Money Investing in Real Estate

This is a fact. Smart people who do their research will make money in real estate.

Real estate investing takes many forms:

1. Residential Sales and Rental Income

You can buy properties such as condos and homes and become the landlord who leases them to generate income. Long term residential rentals can become a substantial passive income stream.

Or you can buy properties that are in need of repair, do the repairs, and resell them. This is often called Flipping.

The term Flipping implies that the transaction is a quick, easy task, but that’s often not the case. Whether you’re going to lease or resell a property, pad in extra time because renovations almost always take longer than expected. And are more expensive than expected.

2. Commercial Real Estate Sales and Rents

Don’t overlook the commercial side as a money-making rental property. Post-pandemic, many towns and cities are faced with a glut of empty commercial properties, from a closed restaurant or office complex to a factory or warehouse.

Similar to a residential property, these commercial spaces can be retrofitted to fit today’s market and you can begin to collect a monthly rent for each tenant.

For example, you can subdivide a large space into a number of smaller spaces and generate rental income from the small spaces. This type of venture lends itself to creative financing, such as real estate crowdfunding platforms. Entrepreneurs and other investors may back such a venture.

3. Real Estate Investment Trusts

Trusts are often set up to manage financial investments, but real estate investment trusts handle property – residential, commercial, or a combination. The real estate investment trust can be part of an investment portfolio, also regulated by the guidelines of the securities and exchange commission. Or it can be set up by a real estate investment group.

You’ll need an attorney who specializes in the field. As a property or properties are added to a trust, a new deed is created to reflect the new “owner” (the name of the trust). You will need a trustee who is responsible for property distribution if that become necessary.

An attorney or a certified financial planner well-versed in this field can investigate whether or not a real estate investor trust is a good investment strategy and the best way to structure your investment properties.

4. Property Value Increase

This is a Flip on a delay. For example, relying on research, you analyze how much an incoming new business will impact a local real estate market. If 700 jobs are to be created from a new industry, it stands to reason that those employees will need housing. The new business is slated to open in two years. You buy a property or property, planning to rent it or let it sit until the demand for housing increases. When the time is right, you sell at a profit.

5. Cleaning Services

It’s a relatively unknown niche in the house cleaning industry – houses that are new construction need to be cleaned, especially if the interior has been dry-walled. The dry wall seams must be taped and spackled, then sanded until smooth enough for painting. The dust from the sanding must be vacuumed and wiped clean before the builder’s punch list – finishing trim, painting, installing floors – can be completed.

Landlords may also need this service for properties that are in-between tenants.

6. Staging

A staging company uses a set of household goods such as furniture and accents (wall art, bedding, area rugs, etc.) to give a house a welcoming look. The company delivers and removes the items needed for staging.

This can be a face-paced business, as realtors ask for quick staging before an open house, for example. Staging is most often used to prep a house for a successful open house.

See Also: Shopify Has Real-Time Reporting for Your Online Store

7. Photography

We’ve all seen the images used to help sell a house. Showcasing a property with good photos takes a lot of time. Increasingly, realtors like to use drone footage to show the location of a real estate property.

8. Foreclosure Specialty

When a company becomes owned by a bank or other hard money lenders, it often becomes listed with a real estate company. But the foreclosed property may be cluttered with items the previous owners have left behind. It may also be dirty.

There are a couple ways you can make money by working with foreclosures:

You can become the management agency that cleans it up, readies it for sale, and keeps the grounds mowed or plowed until it sells.

You can be the person who buys a foreclosure as an investment property, to either rent or sell. There are investors whose entire real estate portfolio of rental real estate is comprised of foreclosure properties.

Typically, each real estate company will have one or two agents who handle foreclosures. This can be a slippery slope, as foreclosures may be complicated by liens on the property for back taxes or utility non-payments. You’ll want a good title search.

9. Property Management Company

A company can handle indoor or outdoor chores, or both. Duties can range from tenant screenings (credit and criminal record checks) to serious property maintenance (electrical, plumbing), and even rental income collected. Or a property manager can handle mowing, snow removal and other outdoor maintenance.

10. Home Warranties/Inspections

This is a great option for a retired contractor. Often property values are based on inspections, which detail things such as the type of electrical service, age of roof and windows, condition of foundation and more.

11. Factory and Commercial Rehab and Design

Many empty factories and other commercial buildings could thrive if retrofitted to be more up to date. Once you know your local market, you may be able to identify a need and fill it.

For example, such properties can become “incubators” or “hubs” for businesses which benefit by grouping. For example, an empty shoe factory can be sectioned to hold a couple restaurants, small commercial ventures and day care.

12.A Combination of These

A key to successful real estate investing is diversification. For example, you can combine staging and photography (and charge separately for each!). You can buy rental real estate from foreclosure stock. You can buy and prep the property with furniture and necessary household basics and use it for short term rentals or vacation rentals, such as the Air BnB or VRBO.

How to Make More Money as an Investor

  1. Network with local business owners.
  2. Develop an interactive website and social media presence.
  3. Diversify your holdings.
  4. Self educate – learn about maintenance and marketing.
  5. Never stop researching the local real estate market.

3. Option a Property

A third way to make money in Real Estate investing without money or credit is to “Option” a property. 

How It Works

This type of transaction is similar to a Lease Option, but very different as well. Consider it a Lease Option’s cousin, who is much hotter and more fun.

Here is the simple difference between the two:

  • Lease Option: the seller has agreed to take a monthly payment for a specific amount of time, with a set purchase price to come at some point in the future. I do not accept any less than 5 years for these transactions and try to get ten years. 
  • Option to Buy: the seller is not accepting monthly payments. They have simply given you the exclusive right to buy a property at a certain price for a certain period of time.

Why would a seller choose one over the other?

Let’s look at a few circumstances and reasons that may persuade a seller to decide one way or another.

  • With an Option, the seller can continue to live in the house. At the same time, he/she will continue to make the monthly payment and take care of all maintenance and repairs.  The seller may not want to accept monthly payments, with the idea of someone else is living in their house.  While they may be motivated to sell, the thought of someone else eating dinner and walking around naked where they raised their children may be too much for them to handle. 
  • They may not have the time required for a Lease Option. If a seller is ten months behind on their payments with foreclosure knocking on the door, and you (the investor) don’t want to make up those payments and there is still a TON of equity in the house, an Option may be your only choice, short of paying cash.
  • With a straight “Option” the seller has nothing to lose. You have a set amount of time to buy their house, which you will only do if and when you find a buyer at a higher price than you have an Option for.  In this type of transaction, your target audience is not the B/C credit buyer, but rather the individual with cash or the ability to go to a bank and get a loan.

Why You Should (or Shouldn’t) Invest

The positives for you the investor, are as follows: You are not dealing with tenant buyers, repairs left by tenant buyers, angry sellers, evictions, lawsuits, monthly payments with no tenant-buyer… the list goes on and on. 

The negatives are you do not make any money at all unless you successfully find a qualified buyer within the time allotted in your Option to buy. The seller benefits because they pay no Real Estate commission, and they have the privilege of living in the house while you are trying to sell it.

Bottom Line

Making money in real estate isn’t quite as straightforward as getting hired for a job, but there are so many interesting and unique possibilities. Start by becoming a real estate agent, then try out different money-making strategies like house hacking or working in unusual niches.

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