Real estate investing can be your passage to wealth if done the right way. As the aphorism goes, “The rich make money work for them.” Cash-rich individuals are oriented in the dynamics of money and ways to employ knowledge in earning maximum gains. There are no shortcuts in getting crazy rich, but you can slowly accumulate wealth by investing wisely in real estate.
There are many opportunities to make money from this business. You can lease, add parcels, subdivide and develop them. You can also rent your properties when the market is declining and sell once the value appreciates.
Real estate investing was embraced greatly by entrepreneurs since it is insusceptible to short-term market fluctuation. Many millionaires educated themselves about the ins and outs of real estate, letting them earn a hefty amount of money in the given sector. Big names like Warren Buffett and Donald Trump made a huge chunk of their money through real estate.
To achieve substantial investment returns, here are the 10 ways to get rich with real estate:
Cash Flow
When looking at any real estate investment, you have to truly understand these two vital components—income and expenses — to comprehend what cash flow really is.
Cash flow is the earnings you make after paying operating expenses and saving some cash for future repairs. It is the remaining balance in your income after maintenance and operating costs. Buy-and-hold investors see cash flow as a lever to improve income.
Essentially, cash flow is some sort of passive income when talking about real estate investments. It does not require 24/7 active working nor monitoring.
As mentioned earlier, you should be saving a fraction of your income to cover unexpected expenses. Yet, unfortunate circumstances might require a big amount of money that your cash reserve cannot cover, which leaves you with no choice but to use your personal savings. Be ready to bid goodbye to your cash flow if that happens.
Factors that might hurt your cash flow include repairs, maintenance, tenant turnover, vacancy, missed rent, property tax, and insurance. To prevent spoiling your cash flow, you can increase your rent if there is so much to repair, look for long-term tenants, do preventative maintenance, refinance, or appeal to your local government about your property taxes if the amount is unjustifiable.
Amass Wealth Through Rental Properties
Amassing great wealth through rental properties is regarded as the traditional way to make money through real estate. History tells us how rulers and nobles vied over lands, and winners got to collect fees from people using the land, whether for livelihood or living quarters.
To build wealth through rental properties, you could buy land in a good area, build a house or commercial building, then rent it out to make money. Or you could also buy an abandoned property, then renovate it before renting it out for a reasonable price.
Before plowing money into rental properties that are presumed to generate profitable returns, weigh up corresponding rent that can be expected from other properties. Although expensive properties may seem nice, there’s no guarantee that they will also render a corresponding rise in rent.
Consider investing in properties that are not overly expensive and avoid betting so much on expensive ones to build wealth.
Real Estate Appreciation
One of the primary and best-known ways to make money through real estate is through property appreciation. In general terms, appreciation refers to the increase in the worth of an asset in due course.
The law of supply and demand is mostly the reason behind land appreciation. Lands are limited in supply, and since the population continues to rise, the need for habitation grows, weakening the supply, thus driving lands prices up. In America, real estate property has grown an average of 3% per year over the last centennial.
The population is guaranteed to grow in the coming years, so there will be a higher demand. This means higher gains and profit for you if you take advantage of this opportunity to start now.
Furthermore, there is something called forced appreciation. By making enhancements and adding amenities to your property, you will be able to increase the property’s value. Uncontrollable external market forces don’t influence forced appreciation, so you can earn more by increasing the rental fee.
Tax Benefits
Real estate owners pay taxes way lower than business owners in other sectors. Several investors choose to invest and own a real estate that comes with an entity like a limited partnership (LP) or limited liability company (LLC) as it enables them to receive tax deductions. This means you will be able to reduce your taxable income and lower tax liability, creating a residual income, which you can use for other investments or savings.
Real Estate Investment Trusts
If you want to earn a reasonable amount of money in real estate without directly purchasing individual properties, Real Estate Investment Trusts (REIT) is one investment option to consider.
REITs have the same concept as mutual funds, where investors pool capital in a company that operates, finances, and owns income-generating real estate. This allows real estate investors to earn dividends from real estate ventures without actually buying, financing, and managing any property themselves.
Real Estate Flipping
Real estate flipping can be a profitable endeavor. You only need to buy a property, refurbish it and sell it at a higher price and if you are good in interior design and are capable of arranging renovations yourself, you would receive bigger cuts since you won’t need to pay for labor.
Flipping is a very lucrative business, but you need to be careful in finding a home to invest in. Make sure not to overspend in renovating the home you decide to purchase. Instead of going for high-end upgrades, you could go for mid-range renovations.
Loan Paydown Option
The primary purpose of a paydown is to lessen the amount of principal owed on a loan. For instance, if a borrower pays beyond the minimum obligated payment on a loan, the remainder can be used in paying down the principal. Through this, the remaining principal is reduced, so there will be less interest that will accumulate in the future.
Private Lending
Rather than letting your money sit comfortably in banks, you could make it work by lending it to real estate holders to improve or expand their property.
Crowdfunding is also an alternative you could consider if you feel like you are not ready to invest a considerable amount of money into a single project. It also provides access to private real estate investments, so you can receive a higher profit compared to publicly-traded REITs.
Refinancing your Mortgage with Improved Cash Flow
By refinancing your mortgage, you are ending one mortgage commitment to start another. This new mortgage has a different cost, conditions, and set of terms. Refinancing your mortgage can help you decrease monthly mortgage payments as well as make a loan with a lower interest rate.
Stop Recycling Debts
If you really want to get rich through real estate, you need to strive not to pile up debts. Build a good credit score to get better loan offers that can finance your real estate endeavors. Don’t let your credit card run chargers because it will lower your credit score, leading to lower chances of gaining approval for a loan or a higher interest rate.
Few properties won’t immediately make you a millionaire, but if you leverage the mentioned wealth-generating strategies above, you will be able to maximize your earning potential. Although not everyone prospers in real estate, employing the right strategies can give you a better chance of succeeding.
