Investing in real estate is often talked about as a great way to diversify your portfolio. However, it can be challenging for those that aren’t experienced to know exactly where to start. From renting and selling to funds and exchanges, there certainly is a lot to choose from (and it’s not always easy to find a simple explanation about their benefits/disadvantages!).
In this article, we are going to discuss the different ways that you can make money with real estate. Sound interesting? Then keep on reading!
Long-term rentals
Long-term rentals can definitely be considered one of the most popular ways to invest in real estate as it provides you with a guaranteed and steady flow of money. While there are always going to be short periods of time where you may need to find another tenant, they are usually in high demand, regardless of their size and price.
Another great benefit is that most tenants in long-term rentals are required to pay their own utility bills, including electricity and water. They are also more likely to take better care of the property, as they are living there for an extended period. All of these things make it much easier to manage.
1031 Exchange
A 1031 exchange is a process used as a tax-deferment strategy. It can be described as a way to defer paying capital gains on a home when sold, as long as another kind of similar property is purchased with the gained profit. It can be a little complicated to understand at first, but it is a technique that has been used by many influential investors. For more information, take a look at these 1031 exchange rules if you are thinking of getting started.
Short-term rentals
Short-term rentals, also known as vacation rentals, are rented by the month and offer much more flexibility for the owner and tenant. This is because you always have the opportunity to block out availability for yourself or even sell the property in the long run. Since most of these rentals include furnishings and other utilities, you can also charge a higher rental rate and take advantage of peak holiday times.
Alongside this, it’s much easier to manage the property yourself without needing to go through an agent. With Airbnb, you can get connected with tenants easily and quickly.
House hacking
House hacking involves the process of renting out certain parts of your home to generate income. This could be used to assist with mortgage payments or any other costs of maintaining a home. In most cases, it involves purchasing a 2-4-unit property, but there are different options available. It is tricky to get started, but one of the main benefits is that you can potentially live in a very expensive area without having to make such significant payments on your own. Click here for more house hacking strategies to get started.
Real estate funds
If you’re not wanting the responsibility of seeing and maintaining a physical property, then real estate funds might be the right option for you. This option pools together funds from a variety of investors to then purchase a property. It’s a much more affordable option and allows you to reap the benefits without having to do any actual maintenance. That being said, while it may reduce risk, it can also lower your return potential. Alongside mutual funds, there are also ETFs (exchange-traded funds) and private equity funds.
Renovation (house flipping)
Renovating or (house flipping) has become increasingly popular over the last few years thanks to the inspiration of many television shows. This process involves increasing the value of a property before you sell it. Sometimes it’s as simple as giving everything a fresh coat of paint, where other times, the property may be completely reconstructed. While it certainly requires the most work out of these options, it also has the potential to give you the most profit.
Commercial real estate
Investing in commercial real estate is much similar to renting or buying a home, except it requires a slightly different process. There is a lot of paperwork involved, and you need to make sure everything is up to standard. While it can be more expensive to start, you also have the opportunity to make a much larger return. For example, a property in the CBD can be in extremely high demand, making you a great monthly income.
And that’s it! These were some of the different ways that you can make money with real estate. What do you think? Would you try any of these methods out?
