There are several ways to make money from investing in real estate. You can invest in various types of properties. Residential or commercial. There are also many creative ways to acquire properties. But today I want to talk about, the three basic ways to make money from investing in real estate with single family residential homes.
Keep in mind, this is not a “get rich quick” scheme. This is about having a plan and then implementing that plan based on your investment goals. It’s done with persistence, patience, and one step at a time. It’s about putting your money to work and letting it work for you over time.
There are endless ways to make money from investing in real estate. Only if you are ready and willing to accept the challenge.
Are You Ready?
1. Buy and Live
When starting out investing in real estate, you may not have had the opportunity to build capital. By buying a home as an owner-occupant with the intent of remodeling the home, and then reselling it at a later time for a profit is an ideal place to start.
As an owner-occupant buyer you’ll find many benefits. From financing options to minimum down payment programs. If you are a DIYer and have extra cash on hand, you can use your own sweat equity to complete the remodel. Or, if you’d rather let a contractor handle making the improvements. You’ll be able to take advantage of the 203(K) rehab loan. The 203(K) rehab loan is an FHA program that covers the cost of the remodel, plus the cost to acquire the home with one mortgage loan. It’s only offered to owner-occupants, and the remodel needs to be completed by a licensed contractor. The stipulation with a 203(K) rehab loan is that you’ll have to keep the home for at least a year.
Another benefit to the buy and live way of making money from real estate, is the exclusion of capital gains. Per the IRS website: “if you have owned and used your home as your main home for at least two years you may be eligible to exclude the gain from the sale of your home.” Your tax professional can help further with any tax questions you may have.
The Buy and Live way of making money is a sound way to build capital over time.
2. Buy and Flip
If you are addicted to shows like Hometown, Good Bones, or Rehab Addict to name a few. And you want to make money from investing in Real Estate with the buy and flip way, there are several things to know.
First, remember the oldest cliche’ in real estate – location, location, location. Which when it comes to buying & flipping couldn’t be more true. Research areas that you may be interested in. Look for areas that are up and coming. Desirable areas that are close to schools, shopping and an easy commute for your potential buyers to go to work. Within those areas are desirable streets and lot locations. You’ll find that an interior lot is always more desirable than a lot that backs to a busy street. When looking to make the most money from buying & flipping remember that anything in the house can be changed, but you can’t change the location.
Put together a team. To make money from buying and flipping it’s important to have a team in place. A Real Estate Professional will help you acquire the property at a discount. They know the market and can give you an approximate price of what you’d be able to resell the property for after the remodel is complete. The same professional understands how important it is to market the property to sell quickly. A Mortgage Professional who is knowledgeable about short term financing programs for investors. A Real Estate Attorney. A crew for demolition and/or clean out. Contractors to put it all back together.
Now you’re probably saying to yourself “I can do the work myself”. You can if you have the time, but going at it alone is not a good idea. You’ve heard the saying “time is money” the longer the house is in the construction phase the more it will cost you.
Which brings me to, know your costs. When you are first starting out and are unfamiliar with the costs involved, ask your contractors. This is why it’s important to have a team of contractors in place, they can give you a ball park idea of what a kitchen or bathroom remodel with cost, or the cost of a new roof. Take that number they give you and always add a cushion, better to over budget than to not budget enough.
The Buy and Flip way of making money can have big payoffs, if done right.
3. Buy and Hold
This is the long-term way to make money, and will allow you to build your real estate portfolio. It can also be used together with either the “Buy and Live” or “Buy and Flip”. Let me give you an example: let’s say you’ve sold your second “Buy and Live” and you’ve made a nice profit from both the first and second home. You’ve saved the 20% down payment to purchase your first investment property. Now you’re on your way to building your real estate portfolio. It all starts with one.
Although I make it sound simple, the key to the buy and hold way of making money is knowing the market. This is where your real estate professional is an invaluable asset. He/She will let you know the property values and rental rates in the area that you are looking to invest.
Also, when you are looking to invest in single family residential properties, don’t forget about new construction. The ideal time to invest in new construction using the “buy and hold” way is when you see the trailer on the construction site, aka “pre-construction” pricing. Remember with any one of the three money making ways, you’ll want to buy the home at a discount price.
The Buy and Hold way to make money from investing in real estate is a great way to build cash flow and your net worth.
I hope that you now have a better understanding of the 3 basic ways to make money from investing in real estate. Each one is a place to start, but only you can decide which one best fits your investment goals.