Making money in real estate is quite a lucrative business venture, and many people jump on the real estate investing wagon thinking they will get rich quick.
Maybe in a perfect world… But in reality, real estate success does not happen overnight and money does not come flowing in without proper due diligence, sufficient capital, and proper real estate market analysis. One thing for certain, real estate is far from passive work and if you wish to attain a lumpsum of passive income to secure for your retirement, you have to work hard and give it some time.
Related: Real Estate Market Trends That Every Investor Should Understand
Here are some specific pieces of advice how to make sure that making money in real estate is not hard for you:
1. Assure Rental Income
This is a major reason why many people choose to invest in real estate as opposed to stocks. You have no control over the value of your stocks, but real estate is a low risk investment and it allows you to be in more control over your investment opportunities. Buying rental property gives you a steady positive cash flow on a monthly basis as well as making you your own boss. Believe it or not, real estate is a business and if you play your cards right, you can say goodbye to your boring day job in no time. The trick is to invest in the right areas and at the right time. That is why it is imperative to keep up with real estate news as well as acquire the right knowledge to make all the right investment and property management decisions. Making money in real estate is all about understanding the housing market and the ever changing economic dynamic in order to make smart investing decisions. The housing market is far from static, so make sure you understand how evolving economic trends impact the overall real estate market before you buy your first rental property.
2. Buy under Market Value for a Lucrative Profit
The trick to profiting in real estate is to find investment properties that are sold under market value. Now, these properties won’t be easy to find, but they are out there, and many real estate investors are reaping off the benefits of buying low and selling high. This is the crux of real estate investing: buying properties under market value found in prime locations, i.e., growing cities, nice neighborhoods, etc. Do not discount foreclosed homes as they tend to sell for much cheaper and increase your ROI in the long run. One more thing to keep in mind: ‘Location, location, location’ is the key to making money in real estate.
3. Sell High
In tandem with the previous point, real estate investors make a profit when there is a big difference between the original price they paid for an investment property and the selling price of it. Appreciation is also on their side as they can choose to wait 10 or 20 years down the line and sell the house for a lot more money. You can always try to beat the market in real estate because making money in real estate depends on you to increase your property’s worth over time and sell it at a high price. One major tip we can give you: enhance your home’s appeal to increase the value of your property. This may include home improvement, new roof, mowed lawn, outdoor pool, etc.
4. Increase Your Equity
Making money in real estate includes building your equity in the long run. Equity is a major benefit of home ownership, and most real estate investors borrow money for this exact reason. In simple terms, equity is the amount of your home that you actually own, discounting the loan. There are two ways to build equity: 1) the value of your home appreciates or/and 2) your debt decreases.
For example:
Say your home is valued at $200,000 and you owe $95,000 on your mortgage. The equity on your home is $105,000 ($200,000 – $95,000).
Your home’s value is important to build your equity, so make sure your increase the value of your home by enhancing its appeal as well as keeping it in a tip top shape to attract buyers. By renting out your house, your tenants help decrease your debt and pay off your mortgage payments. So, basically, you are increasing your net worth each month.
5. Increase Your Returns
Borrowing money gives you leverage to increase your returns, i.e., if you put a down payment of 20%, you will still receive rental income based on 100% of the total value of the house. To elaborate further, let’s say your house is valued at $100,000, and you charge $750 in rent with a $500 mortgage payment each month. You make a $250 ROI on the down payment. That is $3,000 per annum, or 15% return on your deposit. Making money in real estate is all about increasing your ROI in the long run.
Related: How to Calculate Return on Investment in Real Estate: 5 Different Ways
6. Tax Perks of Owning a Real Estate Business
Making money in real estate is about finding ways to save your rental income. Just like in any other business, real estate investors get tax advantages for buying and selling real estate.
Tax deductions include but are not limited to:
- Depreciation from income
- Mortgage interest tax from income
- Mortgage insurance premium
- Cost of repairs and upkeep
- Property tax deductions
When you add up all the deductions, real estate investors are reaping off the benefits and saving their way to the bank. Investors could expense most items affiliated with owning rental properties. Essentially, your rental property can allow you to save up to 30% (or more) of your total expenses incurred.
Related: Starting a Real Estate Business: What You Must Know
Conclusion
Making money in real estate is the best low risk investment to secure high returns and long term financial success. Most successful investors study the real estate market, keep an eye on economic and housing trends, and consult a professional if necessary. There are many available real estate investing resources to help you acquire the right knowledge and understand the key market principles to know where, when, and how to invest in properties and make money in return. Smart investing starts with grasping the right knowledge. One great source is Mashvisor, an online platform to help part-time as well as full-time real estate investors and real estate agents make smart investing decisions in less time.
Head over to Mashvisor to learn the loopholes of making money in real estate!
