How Real Estate Investments Makes Money

by Pamela Watson 03/15/2020


 Photo by Steve Buissinne via Pixabay

While real estate has ups and downs, it has generally been a good long-term investment. Owning a home is one way of investing, but to really take advantage, you can buy property that you won’t necessarily occupy but will make you some money.

How Real Estate Makes Money

There are two basic ways. You can rent out your property, or you can sell it for more than you paid. The latter usually involves improving the property and then “flipping” it.

Before you start making offers on potential rental or flippable property, think about what you hope to accomplish. Are you going to be a landlord or a flipper? The two require different attitudes and skills. While it’s certainly possible to combine the two – to buy a building to fix up and rent, or to rent something you will eventually sell – most people focus on one or the other.

Getting Started

In either case, it’s wise to start small. You may aspire to own an entire apartment complex and rent to a building full of tenants, but it’s better to start out with a single unit and learn to meet the challenges of being a landlord. One hands-on way is to buy a duplex, live in one half and rent the other. If you’re a flipper, you might want to eventually manage a renovation team restoring houses all over town, but you’re better off to cut your teeth on just one.

If you’re a novice, you’ll want to buy locally, and you’ll need to understand real estate trends in your community. Which neighborhoods are changing for better or for worse? How are prices moving? Does the market favor buyers or sellers? Remember, locals trends can be different from national ones. What percentage of available rentals markets are occupied? If occupation rates are high, it’s easier to find and keep tenants.

You can scour local listings yourself, but you’ll do well to consult a real estate agent who understands the market and local rentals. It’s best to work with a banker and have financing in place before you start.

Be realistic about projecting your revenue and expenses. Renovations often cost more than you’d predict. Rental upkeep can be expensive. Eventually you’ll need to upgrade appliances and replace the roof.

If you’re going to be a landlord, decide how hands-on you can be. Can you make repairs yourself? Are you willing to locate tenants and deal with them on an ongoing basis? If not, hire a property management company to take care of day-to-day management.

Investing at a Distance

You don’t have to buy a property and take on the associated headaches to profit from real estate. A vehicle such as real estate investment trust (REIT) or crowdfunded real estate makes you a part-owner of a large real estate investment. Someone else selects and manages the properties. It’s similar to buying stock. You (and others) provide the money, accept the risk and potentially enjoy the profits.

About the Author
Author

Pamela Watson

My Resume

Specialties: Buyer's Agent, Listing Agent, Relocation, Investment Property & REO sales

Since 1979, Pam has been dedicated to providing the most comprehensive, effective, and caring of Real Estate services. She is known and trusted throughout Solano County as a professional who is committed to her clients' real estate success.

Pam is celebrating 40 years selling Solano homes with notable results. She has helped over 1,500 families realize their real estate goals during her career.

Pam and her husband Tim have lived here since 1979. Tim is a licensed contractor/carpenter. They has three sons, all raised in Fairfield. Pam and Tim designed and built their own home in Fairfield giving Pam a lot of knowledgeable of construction and how homes are built.

Always happy to share her "ground up" knowledge of real estate with clients, Pam's extensive knowledge of the area and its homes have been of great benefit to those who are new to the area and to those who are simply changing neighborhoods.

My Experience

Licensed California Broker

CRS: Certified Residential Specialist (Top 5% in the Nation)

GRI: Graduate of the Real Estate Institute

PMN: Performance Management Network (Women’s Council of Realtors since 1992)

SRES™: Seniors Real Estate Specialist

RRC: Referral & Relocation Nationally Certified

ASP: Accredited Home Staging Professional