How to make money from real estate investing?
June 20, 2016
Having financial security is key to a happy life. With rising costs of living, it is not uncommon for people to seek income diversification. Because of rising home prices and low-interest rates, real estate investing has become quite popular.
Real estate investing is no rocket science.
Anyone with a propensity and the right mindset can venture into real estate investing. In this blog post, we take a look at 7 ways investors can make money from investing in real estate:
Buy a property and rent (Long term rental properties)
This is the oldest trick in the real estate investing book and one that is most popular. All expenses related to the property gets taken care of, and the investor gets a handsome monthly profit. On top of that, the investment accrues value appreciation over the course of time.
However, this perfect option has a couple of drawbacks. First, you must maintain the property and keep it habitable. Secondly, you must ensure that the property always remains occupied, and is inhabited by good tenants, who care about the property as you would.
To maintain a healthy cash flow, it’s a good idea to buy properties in areas that are crowd favourites. Ensure that the rent to mortgage ratio is as high as possible.
This is a risky shortcut to earn really good money in quite a short period of time. It involves buying holdings that are either hot in the market or are grossly undervalued and then selling them off as soon as possible. Flippers may or may not fix the properties before selling.
To indulge in this sort of investment, you must have the necessary market connect to track great deals and have immediate finance available. You must be able to predict the future market behaviour and have sufficient cash to pay off mortgages until the property gets sold. You must also be astute enough to sell off the property when the market looks good.
Investing through another company (Real Estate Investment Group)
This is a good option for those who wish to invest in long-term rental properties, but do not wish to get involved in the upkeep of the property. In this form of investing, investors buy one or more properties through a company, who manage these properties on their behalf. The company is responsible for keeping the units well maintained and populated. In return, the company takes a cut.
The best thing about this sort of investing is, you get a monthly sum regardless of whether the managed properties are vacant or populated.
Real Estate Investment Trusts (REITs)
When you invest in REITs, you do not actually buy a property but invest in a company that invests and operates in large-scale real estate projects. REITs are traded like regular stocks and are one of the easiest ways to invest in real estate. REITs pay good dividends but are subject to market risks.
Long Distance Properties
In several important markets in the world (London, Hong Kong, and New York, to name a few), property prices are extremely high. This makes investing in these markets an expensive proposition. For natives of such places, there is the option of investing in offshore markets, like Dubai and Cape Town, where property prices are relatively much affordable.
However, investing in offshore real estate markets have their set of challenges. First of all, you will need to find the right market with convivial investment environment. Second, you will require a good realtor, to help you in the property search. And thirdly, a good property manager, to help manage your property.
(If you seek to invest in Dubai, in Aurum-Re, you have a reliable and experienced partner, who can shoulder responsibilities, and make offshore real estate investing look easy.)
Vacation homes, in touristy places, make up for good real estate investment options. Incomes could climb up and down throughout the year, but a good return on investment is often seen. However, you must have a good management that looks after the guests, maintains the place and collects rents for you. For this type of investing, location is the key.
Non-performing notes are mortgages on the verge of becoming bad debts. These are usually sold at hugely discounted prices. When investing in non-performing notes, in effect, an investor does not buy the house, but the debt. When the owner finally defaults, the investor gets the legal right to initiate the foreclosing and short sales process.