If you’re not a newbie in the real estate investment world, then I’m sure you’ve heard about the criticism people have about real estate–it costs too much! And if you are a newbie, then maybe that’s scaring you off from becoming a real estate investor. Well, that’s why I’d like to tell you about the phenomenon of SPENDING the most and MAKING the most. Yes, real estate investors may actually spend too much, but they also make too much (if done right, obviously).
How They Make Money
There are so many different ways to make money through the real estate world. One of the most obvious ways to do so is through buy-and-holds. Real estate investors have the option of having a passive income, which means they receive regular payments throughout the year. By investing in homes, apartment buildings, or even offices, they may receive a generous monthly income by charging tenants for using the property.
So how do real estate investors make money if they pay property tax, insurance, maintenance fees, and more? The idea is that the rental income produces a monthly positive cash-flow, so that the investor can still have a profit after paying all the costs. In addition, rental rates can go up if costs get more expensive.
What if they don’t receive a positive cash-flow or don’t have tenants? At least with real estate, the property can be sold for a higher value thanks to inflation and appreciation. But knowing when to sell the investment property is key to obtaining this huge profit.
Related: Top Six Real Estate Investment Strategies
Besides the rental income, investors may even make side-cash through real estate business operations, such as vending machines or parking fees. The options here are endless. And although numerous, annoying issues can come up, like dealing with toilets or electricity, those costs are tax-deductible, unlike with other investments.
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Fix-and-flips are another strategy. This alternative is more typically more short-termed. In this case, real estate investors are getting a bargain for the property but putting their money into renovations. Once they are in better shape, they sell them for a much higher price and make a reasonable profit.. This is how many real estate investors make their money. However, if they don’t want to sell, the property can be turned into a rental! If real estate investors are willing to look a little bit harder for subcontractors and supplies, they can save on renovations too, which is why this strategy can be so profitable.
They Don’t Have To Come Up With All Of The Money
One of the main benefits in real estate world is the ability to buy on borrowed money. What does this mean? Well, did you know that most real estate investors pay for their properties in full? Taking out a conventional mortgage is an option, with paying some form of down payment of course. There are even types of mortgage financing that offer lower rates and credit scores, such as the Veterans Administration (VA) and Federal Housing Administration (FHA) loans. But be careful, these loans are only given to owner-occupied purchases. BUT you can always bypass this by purchasing a place with more than one housing unit, like a duplex or triplex. This gives you the option to rent the vacant complexes to others. This not only gets you a profit, but it also makes it easier for you to manage. So if you’re a new real estate investor, then purchasing a multi-family property is a great way to dip your toes in the water!
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Alternatives?
Of course, there are always other options to assist in purchasing units. Real Estate investors should consider the following alternatives:
- 203K Loans by FHA: These loans are unique renovation loans that are precisely used for making home improvements. The required down-payment for the homes can be as low as 3.5%.
- HomePath Mortgages: For foreclosed homes, Fannie Mae offers these mortgages that can be used for real estate investors who are interested in non-owner occupied homes.
Related Article: Buy a rental property using a mortgage or cash?
The Bottom Line…
Investing in land and property has been a constant practice all throughout time, and for a good reason. There are so many options for real estate investors! Depending on your circumstances, what you want, where you are, there are always different ways to go about it. Whether spending a lot of money, a little bit of money, or someone else’s money, real estate investors are able to profit and reap the benefits of inflation, demand for housing, and the commercial industry.
Search for a property on Mashvisor and get a breakdown of rental income and expenses to get an idea of how much investors can make in real estate while constantly spending money.