Investing in residential real estate is one of the easiest and most lucrative ways to make money. There are several ways to make money when investing, with some ways being more full-time and more costly than others are. Which option works best for you depends solely on how much money you want to spend and how much time you want to devote to the cause. Let’s take a look at the top five ways to make money investing in residential real estate.
1. Long-term Rental Properties
Investing in long-term rental properties is maybe one of the best ways to make a profit in real estate. It takes a lot of capital up front, but the return on investment (ROI) is high, with the biggest benefit being the constant monthly cash flow.
Both single family and multi-family units have the potential for being great moneymakers, but it can be difficult finding just the right property in just the right area to really make this type of investing worthwhile. Most investors prefer to purchase single-family homes because there are more of them for sale, which increases the chances of finding the right one.
2. Fix and Flip
Many beginning real estate investors start with fix and flips. They buy properties on the cheap, fix them up, and resell them at a profit. A lot of money is needed upfront for down payments and repairs, as well as the funds necessary for carrying costs until the house is sold again. It can be overwhelming managing contractors during the repair phase, as well as when trying to sell the house again when everything is complete.
The biggest mistake people make when investing in fix and flips is trying to do the repairs themselves. They think they are saving money, but in the long run, it costs more because it takes longer to finish repairs. It is best to hire professionals to make the repairs quickly so you can get to making a profit sooner.
3. Wholesaling
Wholesaling is when an investor buys a residential property, and then turns right around and sells it to another investor without making any repairs. In some cases, the first investor never even actually buys the property, but obtains it under contract before handing it over to another investor. Wholesaling goes very quickly, and many real estate investors make hundreds of thousands of dollars a month doing it.
4. Vacation Rentals
Vacation rentals are those properties purchased in a great tourist-y area and rented out on a monthly basis. During peak seasons, vacation rentals can bring in quite a profit. However, during off-peak seasons, they sometimes barely cover the monthly mortgage, upkeep and management fees. The key to continually making a profit with a vacation rental is to set the rent at a level that keeps renters in it year-round.
5. Long Distance Rentals
When investing in residential real estate, it’s important to look for the best deals possible to increase profits in the end. This isn’t always easy because some markets have incredibly high prices for real estate. Places like New York, for example, see purchase prices as high as $500,000 or more. This makes it very hard to buy property because it requires too much money upfront. What buyers are doing to avoid this issue is investing in residential real estate in another market.
A lot of work goes into investing in long distance real estate. You have to choose a good market, find a superstar realtor, hire a property manager, and then look for the right property. You have to trust the people you have working for you, and be willing to travel if needed to.
Investing in residential real estate is definitely a great way to increase profits and save for retirement. There are several ways to do it, but it all depends on how much time and money you’re willing to put into the process. The five options above give an idea of just what it takes.
