AQRE is just one unique part of North America’s real estate ecosystem. Maybe you’re only starting to learn about the investment possibilities in this space. Maybe you’re already using tools like AQRE or REITs but want to find out about other ways to make money. Either way, it’s worth learning, for real, how real estate creates wealth for the millions who invest in it.
In this series of articles, we want to cover the basic methods that investors have been using to make money through real estate for centuries, as well as new opportunities to profit from real estate that have appeared relatively recently.
This week, read about the big one: appreciation.
Profit from Rising Home Prices
By far, the most common way to earn money from real estate is appreciation—that is, an increase in price. To earn a profit, all you have to do is buy a property and sell it for more at a later date!
It sounds incredibly simple, right? Well, there are still some tricks that investors use to secure or increase their returns.
Location, Location, Location.
When looking at residential properties, knowing how to choose the right location can make a huge difference to appreciation. Knowing which neighbourhoods are adding transit routes, schools, business centers or more means knowing where people will be moving and causing home values to climb in the future.
Home improvements are another great way to quickly boost appreciation. Upgrading the kitchen with state-of-the-art appliances, landscaping and remodelling the bathroom are just some of the ways that investors try to increase the value of a home.
Scouting for Good Deals
Sometimes all you need to do to make money on a property is put in the work of finding a good deal. Every investor has their own ideas of what a good deal looks like. For some, it is a home selling under fair market value because of a struggling seller, a foreclosure, or poor marketing. For others, it is a rundown home that can get a new life, and a significant price boost, with a few simple repairs and a fresh coat of paint. Either way, this strategy has been recommended as a great way to get started in real estate for beginners since it required less capital and time to achieve.
Another common way to boost appreciation is land development. We are all aware that our cities are getting more crowded and expensive, but this trend is as old are cities themselves. Over the centuries, as cities expand or as people leave for cheaper places, developers buy undeveloped land and build new houses on it. Once developed, the value of the land increases dramatically. This is a great strategy for more advanced investors and those with access to a lot of capital.
Impacts of Inflation
It’s often taken for granted by us, but the impact of inflation on prices is actually massive. An annual inflation rate of 2% (the national standard) means that your dollar can only buy about 98% of the same goods a year later. 2% isn’t a lot, but over decades, that small difference really adds up.
Take, for example, a home worth $100,000 in 1970. The same home would be worth many times more today, even if it sat unused the entire time. In fact, based on the rate of inflation alone (including runaway inflation in the 70s), it would likely take more than $500,000 to purchase that same home in 2020! This simple example shows the huge impact of inflation over time. Sometimes to make money all you have to do is wait.
The Bottom Line
There are many proven strategies for making money in real estate. Appreciation and inflation rank high on the list but others can be even more profitable. Come back next week to learn more!
Whatever strategy you ultimately choose, the most important thing is to keep learning, preparing for any risks, and developing your own investment strategy. There are a limited list of ways to make money in real estate, but all the same, no two real estate investor journeys are alike.