Real estate may have produced more wealth than any other industry, but people remain skeptical about entering the fray. Most think you have to start with some form of capital, but that’s not always the case. The only magic power you need is to be able to find the money and often we don’t talk much to open an escrow. If you know what you’re doing, you can make money in real estate even if you’re just starting out.
Do not you believe it? Take the story of Kent Clothier, for example. Clothier opened his first escrow for $500. All he did was find a distressed home and a motivated buyer and brought them together. Today, he sells more than 1,000 properties and manages 5,000 through his company. Graziosi grew up in a trailer park. She lived in a bathroom for a year with her dad when she was 12 years old. She had no advantages. No starting capital. Without anyone’s help. But somehow, he managed to make money in real estate and today he owns more than 400 properties in his portfolio. There are also many other examples of this. Point? He doesn’t need a lot of start-up capital to make money in the real estate industry. But you need the knowledge and experience.
Most people think that it is easier to make money online than to make serious currency in real estate. But both are difficult if you don’t know what you’re doing. When you understand the terrain and understand the path to follow, you will be able to move forward.
This is what you do not need to generate income in the real estate market.
You don’t need credit: Even if you have poor credit, there are ways to get ahead if you’re committed enough. Several of the methods discussed in this article are not credit-dependent at all. In fact, many successful real estate investors started out with no credit or even no credit.
You don’t need significant capital: You don’t need capital to make money in real estate beyond a few hundred dollars to open escrow. Of course, this means opting for lower-priced homes or distressed properties and changing contracts. It also means finding hard-money lenders or other investors who can help you push through deals. This could even apply to home renovations, as long as you’re good at finding the money.
You don’t need major assets: There is another misconception that you need to bring major assets to secure a contract or purchase property. You don’t have to do this, but you do need to understand how creative funding works. Most people just stop in their tracks because they have this belief about what they need to get started.
How to make a living investing in real estate
When it comes to real estate income, there are two ways to generate cash. You can generate passive income by buying and holding, while you can generate active income by changing contracts, making renovations, or adding value in another area, such as putting together real estate development deals. It may seem overwhelming at first, but it won’t be as intimidating once you gain experience.
When most people think of making money in real estate, they ask the following types of questions:
How can I invest in real estate with no money? You can use a variety of methods including any of the following:
- Seller Financing Through Lease Options
- Trade fixed assets like cars, jewelry, and more.
- Take over mortgage payments for someone else who might be in a difficult situation
- Bring in an investor partner with cash
- Borrow from a bank or get a hard money loan
- Get a home equity line of credit
- Use a peer-to-peer lending network
How does a real estate investment work? Real estate investing is based on the concept of cash flow, which means that your income must exceed your outgoing expenses. This is known as positive cash flow. This can work for both long-term residential and commercial rentals, as well as short-term vacation rentals.
Is it good to invest in real estate? Absolutely. This is one of the sources (besides being an entrepreneur) that has generated the most wealth in our history.
What is a wholesale offer in real estate? Wholesaling is similar to trading properties, except you never take ownership of the home when you trade real estate contracts. You can learn the specific s
That said, there are eight main strategies for generating real income in real estate. Whether you can earn passive or active income depends on the strategy you implement.
1. Long-term residential rentals
One of the most common methods of making money in real estate is to take advantage of long-term buy-and-hold residential rentals. People will always need a place to live, and that means getting involved with rental properties. You must do your due diligence to obtain your property with three principles in mind: location, location, location.
Yes, you’ve heard it before, but location is everything when it comes to real estate. This not only applies to higher asset value over time, but also to your ability to quickly rent that property to a long-term tenant. When considering long-term residential rentals, look for a great location. That is more important than the current state of the property itself. In fact, rundown homes in great locations are one of the best investments you can make.
This involves a more traditional approach to making money in the real estate market. It means buying a property with some cash on hand to make a down payment and then keeping that property for the long term. Depending on your personal situation, you can easily take ownership of that property with a very low down payment or even no down payment. That’s especially true if it’s a pre-existing income-producing property.
If there is positive cash flow in a residential rental, then it could be a great investment. However, you probably won’t find it too easily, unless the current owner disposes of it for personal reasons due to a divorce or other need to liquidate that property that requires having some cash on hand.
2. Leasing Options
Leasing options can be a great way to get involved in real estate without having to put up a significant amount of capital or even have great credit up front. You are renting with option to buy. This tends to work well when the real estate market is going up because you are creating a preset price at which you can then buy the property.
If, for example, the real estate market goes up substantially, you can buy that property at a discount. You could also potentially turn around and sell your rights to that purchase to someone else. The clear bet here is on the bull market in real estate. As long as this is an option you can exercise and not something written in stone that says you have to buy at the end of the lease regardless, then you could very well make a profit.
3. Home renovation changes
The fix-and-flip culture has skyrocketed. Thanks to the popularity of home renovation programs, we are experiencing a massive boom in the traditional renovation market. While there is certainly a lot of money to be made here, navigating these waters can be tricky at first. When you don’t have the knowledge or experience, you could find yourself on the losing end if you don’t select the right home.
Matt Larson has turned over 2,000 homes in Iowa and Illinois. Over the course of that time, he learned a few lessons about what to look for and what not to look for when renovating a home. Your advice from him? He looks after the ugliest houses in the nicest neighborhoods. That’s where the real value is. The other difficulty here is not only finding those houses when you are not well connected with real estate agents, but also understanding their value after repair.
How much will the house be worth once you’ve invested in fixes and repairs? To pinpoint that, you need a strong relationship with a general contractor and an on-site tour of the property. While buying blind at auction may seem appealing, unless you really know what you’re doing, you could lose money. However, making money from a home renovation can be pretty straightforward, as long as you understand the underlying costs and potential value.
John and Julie Wakefield, a husband-and-wife team who have done hundreds of cartwheels, say something similar. They advise against biting off more than you can chew, and more importantly, you should find creative ways to help others. Success as a real estate investor has as much to do with how creatively you can solve problems as how effectively you can calculate numbers.
4. Change of contract
One way to make money in real estate without having to put up a lot of capital or credit is to change contracts. All you have to do is find a distressed seller and a motivated buyer, and then bring them together. While it may seem difficult to locate a seller in distress, Clothier has systemized the entire process to do so. The trick to contract switching is to identify the distressed seller and locate a ready-to-use buyer.
By bringing these parties together, you have eliminated the need to search for a buyer after you have signed a contract. This situation presents more risk. Instead, by locating sellers and buyers in advance, you can easily enter into a contract with the confidence that you won’t be stuck closing escrow on the property.
To do this, you must be able to identify vacant houses or houses that are behind on their mortgages. That’s the tricky part. In fact, you’re trying to find struggling sellers, but already vacant homes are primed for an opportunity like this.
5. Short sales
Short sales occur when the current owner of your home is behind on their mortgage, but the property has not yet gone into foreclosure. For this to happen, all parties must agree to the transaction, as the property is being sold for less than what is owed on existing mortgages. This can be a great opportunity for quick profits without investing in lengthy renovations.
However, being successful with short sales or any other predetermined type of auction is often difficult. You usually have to pay for houses directly in cash, and sometimes that has to happen without the site seeing it. Short sales are better than auctions because you have the opportunity to look at the house and enter into a negotiation process. Unless you are an experienced investor, jumping in without a full inspection and review could be risky.
Short sales take time, but the wait can be worth it. The potential return from a short sale can be instant. Tens of thousands to hundreds of thousands of dollars can materialize as soon as the property is purchased because the bank is mired in a bad investment. But don’t expect to get the property in exchange for a robbery, you will still have to negotiate a relatively fair price. Depending on how much the bank wants to get rid of that property, it could sit back and wait for another buyer, so don’t try to lose too much.
6. Vacation rentals
Vacation rentals can represent a lucrative path to profit in the real estate market. Not only can you earn some side income from vacation rentals, but you could also earn a significant amount of money and build up a substantial passive income stream if you’re in a high-traffic tourist spot. Places like Los Angeles, Miami and other tourist hotspots are well known for having a high demand for these short term rentals.
I have long been a firm believer in the vacation rental market. The best part? You don’t even need to own the properties to earn money. Some of the world’s most successful property management companies specializing in vacation rentals don’t actually own the homes, but provide a high-end consumer experience.
7. Loans with hard money
Hard money lenders provide short-term loans to people who would not normally qualify for such loans. To participate in hard money loans, you will need some capital to back it up. These are loans that often have high interest rates because they are for very short periods. To close your first deal, you can turn to a hard money lender. If you have what you think is “something safe” but lack the capital, this might be your best option.
You could also become a strong money lender, but you’ll need some capital. This may not be the first way you start making money in real estate, but as you build your network, capital, and a strong business portfolio, you can provide these bridging loans and earn a great rate of return.
Even if you lack a huge amount of capital, as long as you can successfully identify the right trades, provide a small amount of money, and generate a high success rate, chances are you can find investors to join without much difficulty. The interest rates here make sense. There is more risk but also more reward. It can be a way to keep your cash fairly liquid and generate a nice short-term profit without having to wait years and years for those returns to materialize.
8. Commercial Real Estate
One of the great opportunities in the real estate sector to generate a considerable amount of money is to invest in commercial real estate. Commercial real estate developers focus not only on selling properties, but also developing them, adding value to properties to increase their bottom line through renovations and improvements. They also advise on projects that might require more experienced real estate investors to see them come to fruition.
Ali Safavid, founder of 5209 Investments, says that commercial real estate is one of the most lucrative sources of income and profit in the real estate market. As long as you can find ways to add value to the trade, investing in commercial real estate can be one of the biggest income earners you’ll find.
People always need office and retail space to run their businesses. These physical locations are the bread and butter in the real estate niche. As you grow, you can find ways to open shopping malls, develop large-scale buildings, and more. But you have to start somewhere.