Real estate agents aren’t the only professionals making money in real estate. There are other ways to make real estate income, such as with monies from rental properties or by providing property management.
Which type of real estate venture will work best for you and more importantly should you invest in real estate?
Types of Real Estate Business
We’ve chosen four main types of real estate businesses. We’ll use a broad brush to define those four main types and get into more detail below (12 Ways to Make Money Investing in Real Estate).
- Residential real estate investments
- Commercial real estate investments
- Property management services within the real estate sector
- Real estate developers
You don’t have to be a licensed real estate agent to get involved in these segments of the real estate industry but having that education and experience would certainly help. If you don’t have a real estate license, connect with a trusted person who does.
12 Ways to Make Money Investing in Real Estate
This is a fact. Smart people who do their research will make money in real estate.
Real estate investing takes many forms:
1. Residential Sales and Rental Income
You can buy properties such as condos and homes and become the landlord who leases them to generate income. Long term residential rentals can become a substantial passive income stream.
Or you can buy properties that are in need of repair, do the repairs, and resell them. This is often called Flipping.
The term Flipping implies that the transaction is a quick, easy task, but that’s often not the case. Whether you’re going to lease or resell a property, pad in extra time because renovations almost always take longer than expected. And are more expensive than expected.
2. Commercial Real Estate Sales and Rents
Don’t overlook the commercial side as a money-making rental property. Post-pandemic, many towns and cities are faced with a glut of empty commercial properties, from a closed restaurant or office complex to a factory or warehouse.
Similar to a residential property, these commercial spaces can be retrofitted to fit today’s market and you can begin to collect a monthly rent for each tenant.
For example, you can subdivide a large space into a number of smaller spaces and generate rental income from the small spaces. This type of venture lends itself to creative financing, such as real estate crowdfunding platforms. Entrepreneurs and other investors may back such a venture.
3. Real Estate Investment Trusts
Trusts are often set up to manage financial investments, but real estate investment trusts handle property – residential, commercial, or a combination. The real estate investment trust can be part of an investment portfolio, also regulated by the guidelines of the securities and exchange commission. Or it can be set up by a real estate investment group.
You’ll need an attorney who specializes in the field. As a property or properties are added to a trust, a new deed is created to reflect the new “owner” (the name of the trust). You will need a trustee who is responsible for property distribution if that become necessary.
An attorney or a certified financial planner well-versed in this field can investigate whether or not a real estate investor trust is a good investment strategy and the best way to structure your investment properties.
4. Property Value Increase
This is a Flip on a delay. For example, relying on research, you analyze how much an incoming new business will impact a local real estate market. If 700 jobs are to be created from a new industry, it stands to reason that those employees will need housing. The new business is slated to open in two years. You buy a property or property, planning to rent it or let it sit until the demand for housing increases. When the time is right, you sell at a profit.
5. Cleaning Services
It’s a relatively unknown niche in the house cleaning industry – houses that are new construction need to be cleaned, especially if the interior has been dry-walled. The dry wall seams must be taped and spackled, then sanded until smooth enough for painting. The dust from the sanding must be vacuumed and wiped clean before the builder’s punch list – finishing trim, painting, installing floors – can be completed.
Landlords may also need this service for properties that are in-between tenants.
A staging company uses a set of household goods such as furniture and accents (wall art, bedding, area rugs, etc.) to give a house a welcoming look. The company delivers and removes the items needed for staging.
This can be a face-paced business, as realtors ask for quick staging before an open house, for example. Staging is most often used to prep a house for a successful open house.
We’ve all seen the images used to help sell a house. Showcasing a property with good photos takes a lot of time. Increasingly, realtors like to use drone footage to show the location of a real estate property.
8. Foreclosure Specialty
When a company becomes owned by a bank or other hard money lenders, it often becomes listed with a real estate company. But the foreclosed property may be cluttered with items the previous owners have left behind. It may also be dirty.
There are a couple ways you can make money by working with foreclosures:
You can become the management agency that cleans it up, readies it for sale, and keeps the grounds mowed or plowed until it sells.
You can be the person who buys a foreclosure as an investment property, to either rent or sell. There are investors whose entire real estate portfolio of rental real estate is comprised of foreclosure properties.
Typically, each real estate company will have one or two agents who handle foreclosures. This can be a slippery slope, as foreclosures may be complicated by liens on the property for back taxes or utility non-payments. You’ll want a good title search.
9. Property Management Company
A company can handle indoor or outdoor chores, or both. Duties can range from tenant screenings (credit and criminal record checks) to serious property maintenance (electrical, plumbing), and even rental income collected. Or a property manager can handle mowing, snow removal and other outdoor maintenance.
10. Home Warranties/Inspections
This is a great option for a retired contractor. Often property values are based on inspections, which detail things such as the type of electrical service, age of roof and windows, condition of foundation and more.
11. Factory and Commercial Rehab and Design
Many empty factories and other commercial buildings could thrive if retrofitted to be more up to date. Once you know your local market, you may be able to identify a need and fill it.
For example, such properties can become “incubators” or “hubs” for businesses which benefit by grouping. For example, an empty shoe factory can be sectioned to hold a couple restaurants, small commercial ventures and day care.
12.A Combination of These
A key to successful real estate investing is diversification. For example, you can combine staging and photography (and charge separately for each!). You can buy rental real estate from foreclosure stock. You can buy and prep the property with furniture and necessary household basics and use it for short term rentals or vacation rentals, such as the Air BnB or VRBO.
Things to Consider Before Investing in Real Estate
- Local housing and commercial market
- Local predicted job market
- Your tolerance for risk
- Your goals – quick profit versus steady income
You may be able to purchase a property with a minimal down payment. For example, for a residential loan you sometimes only need 5% of the purchase price (or 20% for vacant land). Your monthly mortgage payment may include the property taxes, calculated by the month. Interest rates impact the amount of payment.
In other words, with a good credit rating you can start building your real estate assets and buy your first investment property with very little money down. Whether you’re going to be flipping houses or renting office buildings, you need a stingy estimate of your monthly positive cash flow. So make sure to go through numbers thoroughly to avoid real estate investment mistakes.
How to Get Started in Real Estate Investing
- Decide whether or not you want to buy and sell, buy and rent, or choose another type of involvement (management, staging, etc.) in real estate.
- Choose which type of property, commercial or residential.
- Get preapproved for private lending.
- Learn the punch lists for inspections and appraisals, so you’ll know what to look for in a property.
- Network. For example, to set realistic rehab goals, enlist a local contractor for estimates. Establish relationships with key players such as inspectors, appraisers, agents and lenders.
How to Make More Money as an Investor
- Network with local business owners.
- Develop an interactive website and social media presence.
- Diversify your holdings.
- Self educate – learn about maintenance and marketing.
- Never stop researching the local real estate market.
What is the fastest way to make money in real estate?
Flipping properties is the fastest way to make money (see below).
How much money can you make investing in real estate?
The average investor makes between $70,000 to $121,000 annually, according to statistics. Here’s how the types of investing compare:
Flippers make about $63,000 per flip
Rentals (residential) make from $35,120 to $61,097.
Wholesaling properties garners from $21,500 to $98,500.
Commercial rentals bring in from $27,500 to $121,000 annually.
Five states lead the way in making money for real estate investors: New York, Massachusetts, Hawaii, Connecticut and New Hampshire.