Anyone who has a mortgage can already see how real estate investing can make a lot of money, as each year the house’s worth increases. As long as you can buy cheap and sell high, the money is in the bag, right?
Well, it’s not that simple.
How Does Real Estate Investing Make Money
There are two ways you can get income from real estate investing. The first is to buy a building, wait a while (possibly renovate it), and then sell it.
The second method is rent. You can buy a property, and then charge rental income worth more than the mortgage. This gives you enough money to pay the mortgage and gain an income. These are two of the most common real estate opportunities.
For example, if you look at manchester investment property options, the average renting price is £1,600 or $2,046.61, but the average mortgage is £1,290.07 a month or $1,650.27.
Using the renting route can give you an automatic £300 every month. The downside is you have to pay your mortgage every month, but renters might not be available each term.
The 8 Strategies
Now let’s dive into the nitty gritty. Each real estate option will come with pros and cons, so let’s talk about them all.
- Wholesaling
Wholesaling is when you find properties selling under their market value. You can buy the property and instantly sell it for the correct price.
The property might be cheap as the current owners want a quick sale, or because they owe money, and the debt collectors want their repayment ASAP.
- Prehabbing
Prerehabbing is when you resell a property after giving it minor cosmetic updates. You glam up a bad property so real house flippers won’t be as daunted by the property. This process could leave you with negative reviews.
- House Flipping
House flipping is when you buy a run-down property and rehab it (rehabilitate and fix the problem), and then sell it for a much higher price. This is a very popular idea, but you have to balance the costs of labor and new construction to ensure you get a profit.
- REIT Investing
Real Estate Investment Trusts are companies that help manage the income produced by properties. You can invest in these companies instead of an actual property, thereby reducing your risk.
- Online Real Estate Platforms
REIT and OREP are very similar, however, this investment strategy involves funding real estate projects. Your investment could help someone do up their own home with a loan, in which you will receive a monthly payment with interest.
- Renting
Renting is the most well-known real estate investment type. You buy a home and keep it in shape as someone else lives in the property or uses it as a workspace. They pay you monthly for the usage.
- Real Estate Syndication
This method involves a pool of people working together to buy and renovate a home. It’s a crowdfunding investor type, and in the end, each person owns a portion of the home. This can be done with strangers or friends.
- Real Estate Investment Groups
Like RES, REIG involves businesses rather than single investors.
How To Get Started
To get started, you need to figure out what method you want to use. With that in mind, set up a budget for how much you can afford to spend.
For example, if you’re going with renting, you need enough money for a deposit and to maintain the house. Your profits should be split into “house money” and “actual profits” so when something goes wrong with the property, you can fix it without worry.
But, if you’re planning on flipping a house, you need to calculate the costs of this large project. Most house flippers have skills in plumbing, electrical, building, or something similar. This allows them to cut costs of hiring labor, as they will complete the tasks themselves.
It’s not uncommon for a group of talented friends to work together reducing all or most costs of labor as they pool their skills together.
Lastly, once the planning is done, you need to talk to a solicitor or financial advisor to ensure no laws are being broken or misunderstood. They can also guide you through the house-buying legal process.
Final Thoughts
No matter which option you choose, make sure you do your due diligence. Talk to a community that has already taken on and completed the method you’ve chosen, and speak to solicitors to ensure you aren’t skipping any important steps.
As with all investments, there is always a risk. Financially prepare for that risk.