With so many different options for investing your money. It is often hard to tell which is the best for you. Real estate is one of the oldest forms of investment and offers a great deal of advantages over other types of investment. For instance, when you buy a stock, the only way of realising a profit is if that stock appreciates in value. With real estate investments, there are a number of different ways of making a profit. To help you decide if real estate is the right investment for you, we’ve put together our top ten ways of making money from real estate.
This is the main source of profit investors are normally going for when they buy to rent. It is a relatively hands off investment which offers investors a regular income and regular profit.
If you manage to procure a property for less than market value, you will be able to turn an instant (an often sizeable profit). Undervalued properties can be acquired through foreclosures, quick sales, and your own negotiation skills.
If you can manage to sell your property at above market value by staging it in such a way as to attract a number of different buyers, you will also make an instant profit. Unlike stocks and shares, real estate allows you to try to beat the market by negotiating at the selling stage.
If you take a mortgage to finance the purchase of a rental property, you will be increasing your equity stake with every mortgage payment. If you use the rent to pay the mortgage, you will be increasing your net worth each month without paying out a single penny.
Leverage increases returns
No matter how much you put down on your property, if you chose to rent it, you will receive rent on 100% of that property, making for a great return on your initial investment. For instance, if you put 20% down on a property worth $100,000 and you charge $750 in rent with $500 in mortgage, taxes and fees. You have a $250 profit on $20,000 down. That is $3,000 a year, or 15% return on your deposit.
Leverage makes you profit on the full selling price
If you then sell that $100,000 property which you bought with a $20,000 deposit for $120,000 a few years later, you get your $20,000 plus principal payments back, and a $20,000 profit. It is only a 20% profit over the full value of the property, but thanks to your leverage, you are making a profit of 100%, minus principal payments to the $80,000 mortgage. The bigger the leverage, the greater the return.
Renting smaller units
If you want to, you can rent your property by the room. Often renting rooms to two or three tenants offers greater rewards than renting the entire property to a single family.
Renting to businesses
Businesses are often in need of properties for staff to stay in while they visit different offices. Renting to businesses often offer higher rents and greater security if you are letting your property to a well-known business.
Profit from a lump sum on a refinance
If you buy a property and make improvements (which can be paid for by rental income) which increase the value of the property, you can then refinance the property to realise that profit. If you want to, this money can then be used as a deposit on your next property.
Profit from extra cash flow on a refinance
If you are able to refinance the property to lower your mortgage bill payments while keeping your rent at the same level, you are generating more profit every month. This money can then be saved for a deposit on your next property or simply kept as extra income.