Related: Learn All About Real Estate Cash Flow Analysis in One Blog
How Much Do Real Estate Investors Make?
Generally, you can expect an average annual rate of return on a real estate investment between 8% and 12%. In real estate investing, the rate of return on residential investments averages around 10.6%, compared to 9.5% in commercial real estate. Real estate investment trusts (REITS) beat the competition with an average annual rate of return of 11.8%
With all this said, keep in mind that the best real estate investors are experts in diversifying their investment portfolios and capitalizing on investments reaping long-term rewards, as opposed to immediate returns. The best real estate investors think long term and become experts in real estate investing. If you focus your energy on short-term goals and returns, you won’t find financial freedom in the long run. Real estate is a long-term investment strategy and to expand their investment portfolio and diversify it in a smart way, investors must acquire the right knowledge and expertise to:
- Recognize positive cash flow properties with real estate appreciation.
- Pick the right location and neighborhood for real estate investing.
- Perform return on investment analysis, i.e., real estate market analysis and cash flow analysis.
- Diversify in different real estate investment strategies to maximize their returns.
How to Maximize Your Rental Income
The best real estate investors capitalize on rental properties reaping a high ROI in the long and short term. To rent out your rental property and reap financial rewards, make sure to do the following:
1. Invest in prime locations
Location is a prerequisite to positive cash flow returns and a high rate of return on investment. Buy real estate properties in prime locations with nearby amenities, i.e., transportation facilities, parks and recreations, malls and shops, schools, etc. Also, invest in cities in economies with positive economic indicators. Mitigate your vacancy risk as well as high tenant turnover by capitalizing on the right location and neighborhood.
2. Rent your property at market value
Charging higher rent to maximize your cash flow returns will backfire, and you might incur vacant units for a long time.
3. Choose the right tenants
Take your time in running background checks and doing the necessary to find the right tenants for your property.
4. Enhance your rental property’s appeal
Push your rental property cash flow up and maximize returns through repairs, renovations, and upgrades.
Maximize Your Rental Income via Mashvisor’s Investment Property Calculator
With Mashvisor’s investment property calculator, investors can instantly figure out the rate of return on their investments. Without the need to manually calculate your net profit, Mashvisor’s calculator estimates and discounts all your expenses to arrive at your net monthly profit. In this way, you can guarantee a profitable investment from the get go. Real estate investors especially love to use Mashvisor’s investment property calculator because it is fast and easy to use in an instant.
Choose a Real Estate Investment Strategy to Reap High Returns
1. How much do real estate investors make depends on acquiring the right real estate knowledge to compete against the best real estate investors in the industry.
2. How much do real estate investors make depends on capitalizing on positive cash flow properties in prime locations and especially good neighborhoods.
3. How much do real estate investors make depends on recognizing real estate investments reaping long-term appreciation.
4. How much do real estate investors make depends on their business plan and choosing the right investment strategies aligned with their long term business goals.
5. How much do real estate investors make depends on conducting the right real estate analysis before closing the deal on a house.
6. How much do real estate investors make depends on diversifying their real estate investment portfolio and investing in several residential and.or commercial real estate properties to make money and build wealth in the long term.
7. How much do real estate investors make depends on how much risk they are willing to take on and whether or not they have the right financial means to invest in real estate and build a successful real estate investment portfolio.
Tips for Starting a Real Estate Business
1. The 1% Rule
If a landlord is earning a monthly rental income that is approximately 1% of the original purchase property price, consider it a good investment.
To further elaborate, imagine a scenario where your rental income is $1,700 per month, and the property was original valued at $200,000.
Rental income = $1,700 per month
Purchase price of the property= $200,000
Therefore, your rate of return on investment is 0.85% ($1,700/$200,000) of the purchase price every month. The 1% rule is a good starting point and reference for investors starting out in real estate.
2. The 50% Rule
A good deal on a house entails having operating expenses and vacancy amount to no more than 50% of the monthly rental income.
If you, as a landlord earn a passive income of around $1,000 per month and your total expenses amount to $500 on a monthly basis, your expense to income ratio is 50%. If you are losing your rent money to more than 50% on expenses, then you made a bad deal on the house.
Rental income = $1,000 per month
Total monthly expenses = $500
Expense to income ratio = 50% ($500/$1,000)
Related: Become an Expert on Internal Rate of Return in Real Estate Investing
Conclusion
How much do real estate investors make is subjective and dependent on many factors which include, but are not limited to, the investors’ ability to learn fast and recognize the best investment strategies and real estate opportunities to make money and build wealth in the process. There is no such thing as an overnight success story, it will take years to reach a high level of financial freedom in this business. But, with all this said, almost anyone can make money in real estate investing and reap the highest rewards.
Head over to Mashvisor for more real estate investing insight!