People are still hesitant to get into the real estate business, even though it has made more money than any other business. Most people think they need some kind of capital to get started, but that’s not always true. To open up the escrow, the one magic power you do need is to be able to find the money, which is usually not a lot. Even if you’re just starting out, you can make money in real estate if you know what you’re doing.
Don’t believe that? Think about the story of Kent Clothier. Clothier put $500 into his first escrow. All he did was find a house that was in bad shape and a buyer who was ready to buy it. Today, he flips over 1,000 properties and his company takes care of 5,000. Graziosi grew up in a trailer park.
When he was 12, he and his dad lived in a bathroom for a year. He had no good points. No startup capital. No one could help. But he found a way to make money in real estate, and he now owns well over 400 properties. There are a lot more examples of this, too. So what? To make money in real estate, you don’t need a lot of money to start out. But you do need to know what to do and how to do it.
Most people think that making money online is easier than making a lot of money in real estate. But if you don’t know what you’re doing, it’s hard to do either one. When you know where you are and where you want to go, you can make progress.
Here are some things you don’t need to make money in the real estate market.
You don’t need a lot of money. You don’t need more than a few hundred dollars to open escrow to make money in real estate. This means, of course, that you have to look for cheaper homes or homes in bad shape and flip contracts. It also means finding hard-money lenders or other investors who can help you get deals done. This could even work for home improvements if you know how to find the money.
How to make money by putting money into real estate
When it comes to making money from real estate, there are two ways to do so. You can make passive income by buying and holding, and you can make active income by flipping contracts, doing renovations, or adding value in another way, like putting together property development deals. It might seem hard at first, but it won’t be as hard after you’ve done it a few times.
Having said that, there are eight main ways to make real money in real estate. Depending on the plan you use, you can either make a passive income or an active income.
1. Long-term Rentals of Homes
Long-term buy-and-hold residential rentals are one of the most common ways to make money in real estate. People will always need a place to live, so investing in rental properties is a good idea. To find the right property, you need to do the right amount of research and keep three things in mind: location, location, and location.
Yes, you’ve heard this before, but the location of a house is the most important thing. This is true not only because the property’s value goes up over time, but also because you can quickly find a long-term tenant for it. Look for a great location when you’re thinking about long-term residential rentals. That is more important than the way the property looks right now. In fact, run-down homes in good areas are one of the best investments you can make.
This way of making money in the real estate market is more traditional. It means buying a property with enough cash for a down payment and keeping it for a long time. Depending on your situation, you can easily buy that property with a very low down payment or even none at all. This is especially true if the property is already there and brings in money.
If a rental home brings in more money than it costs, it could be a great investment. But you probably won’t find that very easily, unless the current owner is getting rid of it because of a divorce or some other personal reason that makes it important for them to have cash on hand.
Lease options can be a great way to get into real estate without having to put up a lot of money or even have good credit at the start. You are renting, but you have the option to buy. This usually works well when the real estate market is going up since you’re setting a price that you can buy the property at later.
If, for instance, the price of real estate goes up a lot, you can buy that property for less. You could also turn around and sell someone else the rights to that purchase. The best bet here is on the real estate market going up. As long as this is a choice you can make and not a rule that says you have to buy at the end of the lease no matter what, you could very well make money.
3. Flipping Houses after Renovations
Fix-and-flip has become very popular. Because of how popular home improvement shows are, the traditional renovation flip market is growing very quickly. There is no doubt that you can make a lot of money here, but it can be hard to find your way around at first. If you don’t have enough knowledge or experience, you could lose money if you don’t choose the right home.
Matt Larson has sold more than 2,000 homes in Iowa and Illinois. During that time, he’s learned a few things about what to look for and what to avoid when flipping a home that needs repairs. What was his advice? Go after the homes in the nicest neighborhoods that are the ugliest. There’s real value there. Not only is it hard to find these homes if you don’t know many real estate agents, but it’s also hard to know how much they’re worth after repairs.
How much will the house be worth after you put money into fixing it up? To find out for sure, you need to have a good relationship with a general contractor and see the property in person. If you don’t know what you’re doing and buy something at an auction without seeing it first, you could lose money. But flipping a house can be a simple way to make money, as long as you know how much it will cost and how much it could be worth.
John and Julie Wakefield, who have done hundreds of flips as a husband-and-wife team, say the same thing. They say that you shouldn’t take on more than you can handle and that you should find creative ways to help other people. As an investor, it’s just as important to be able to think of creative ways to solve problems as it is to be good with numbers.
4. Contract Flipping
Flipping contracts is one way to make money in real estate without having to put up a lot of money or credit. Find a seller who is in trouble and a buyer who wants to buy, then bring them together. Even though it might seem hard to find a seller in trouble, Clothier has made the whole process easy. The key to contract flipping is to find a seller who is in trouble and a buyer who is ready to buy.
By bringing these people together, you’ve eliminated the need to look for a buyer after signing a contract. There is more danger in that situation. Instead, if you find the sellers and buyers ahead of time, you can easily sign a contract knowing you won’t have to close escrow on the property.
To do this, you need to be able to find homes that are either empty or have mortgages that are behind. That’s where it gets hard. You’re really looking for sellers who are in trouble, but homes that are already empty are perfect for this kind of deal.
5. Short Sales
When the owner of a home is behind on their mortgage payments but the property has not yet gone into foreclosure, a short sale can happen. All of the parties involved must agree to the deal since the property is being sold for less than what is owed on the mortgages. This can be a great way to make a quick profit without having to spend a lot of money on repairs.
But it can be hard to win auctions for short sales or other types of defaults. Most of the time, you have to pay cash upfront for the homes, and sometimes you have to do that without ever seeing them. Short sales are better than auctions because you can look at the house and negotiate with the seller. Jumping in without a thorough inspection and review could be risky if you are not an experienced investor.
Even though short sales take time, they can be well worth it. With a short sale, you may be able to make money right away. Due to a bad investment, the bank could lose anywhere from tens of thousands to hundreds of thousands of dollars as soon as the property sale goes through. But don’t think you can get the property for nothing; you’ll still have to bargain for a fair price. Depending on how badly the bank wants to sell that property, it could sit around and wait for another buyer, so don’t try to lowball it too much.
6. Vacation Rentals
Vacation rentals can be a good way to make money in the real estate business. You can make some extra money from vacation rentals, and if you live in an area that gets a lot of tourists, you could make a lot of money and build up a largely passive income stream. Short-term rentals are in high demand in places like Los Angeles, Miami, and other tourist destinations.
I’ve always been sure that the vacation rental market is a good one. What’s the best? To make money, you don’t even have to own the properties. Some of the most successful property management companies in the world don’t own the homes they rent out, but they do give their customers a high-end experience.
How do you participate? Use the relationships you already have with owners in your area. Talk to other people. Build bonds. Set up systems. Make sure they are as happy as possible. Do everything you can for the people who stay in the homes you manage. And think about how you can help current owners run their rental businesses with less time and stress. Before you manage vacation rentals for other people, you should list your own property on a site like Airbnb, HomeAway, or FlipKey.
7. Lending with hard money
People who normally wouldn’t be able to get short-term loans can get them from hard-money lenders. If you want to do hard-money lending, you’ll need some money to back you up. These are short-term loans that usually have high-interest rates because they are only for a short time. A hard money lender could help you close your first deal. If you think you have a “sure thing” but don’t have enough money, this could be your best option.
You could also lend hard money, but you’d need some money to do that. This probably won’t be the first way you make money in real estate, but as you build your network, your capital, and a solid portfolio of deals, you could offer bridge loans and make a great rate of return.
Even if you don’t have a lot of money, if you can find the right deals, offer a small amount of money, and have a high success rate, it shouldn’t be too hard to find investors who want to help you. Interest rates make sense here. There’s more danger, but there’s also more payoff. It can be a good way to keep your cash easily accessible and make a nice profit quickly, without having to wait years and years for the money to come back.
8. Commercial Real Estate
Investing in commercial real estate is one of the best ways to make a lot of money in the real estate market. Developers of commercial real estate don’t just focus on flipping properties; they also work on improving them and making them worth more so that their net incomes go up. They also give advice on projects that more experienced real estate investors might need more time to finish.
Ali Safavid, who started 5209 Investments, says that commercial real estate is one of the best ways to make money and income in the real estate market. Commercial real estate can be one of the best ways to make money as long as you can find ways to add value to the exchange.
For their businesses to run smoothly, people always need places to work and sell things. In the real estate business, these places are the bread and butter. As you get bigger, you can find ways to open shopping malls, build big buildings, and do other things. But you need a place to start.