In parts 1 and 2, you learned all about appreciation and income – the foundations for making money in real estate. At its core, almost every profit strategy you see on the internet will be based on one or both of these tools.
But just because every investor uses the same tools, doesn’t mean they build their path to profits in the same way. Digging deeper, there is actually a lot of variety in the ways you can use appreciation and income to earn money.
Some are more hands-on, and others are more passive. Here is a closer look at some of the biggest active paths to profits in real estate:
Long Term Rentals
Owning rental properties can be a great income opportunity for those with DIY and renovation skills and those who have enough patience to deal with tenants.
These can be anything from single-family homes to multiplexes with an entire community of tenants. Either way, your strategy is the same: make sure your rent is higher than your mortgage, taxes, repairs and ongoing expenses.
You need more starting capital to make a significant profit in this kind of investment vs others, but when you invest correctly, it can provide you with a consistent income not tied to your hours worked or any market conditions. That’s why we consider it one of the best ways to secure your future with real estate!
Airbnb and vacation rentals
Vacation rentals used to be a massive investment only open to hotel chains – but since the arrival of Airbnb, it’s become just as easy for individuals to invest here.
In fact, many travellers now prefer the experience of an Airbnb to a hotel, and they are willing to pay a premium to vacation in someone’s private home. This gives you an advantage over traditional hotels invested in this type of real estate.
This source of income will never be as stable as long-term rentals, but it can offer a lot higher returns if you’re in a popular tourist destination. Places like L.A., Montreal, Barcelona and other tourist hotbeds are well known for having high demand – and high profits – for this kind of investment.
House flippers are a different breed of investor. Instead of focusing on the long-term, consistent profits, they want it now – and fast. They specialize in improvements that make real estate appreciate in a short amount of time, then sell for a quick but significant profit.
This is quite a complicated strategy, and it’s for people with significant experience in real estate. To succeed, you need skills from finding good deals on real estate, negotiating a good price, doing renovations or knowing enough to oversee a crew, staging and marketing your property for sale, and analyzing the real estate landscape to sell at the right price.
Putting aside the risk of a sudden crash in real estate prices, flipping will make you a lot of money in a short amount of time, but it will take every bit of your time and energy to see a flip to completion. That’s why we don’t recommend this strategy for beginners.
Own Your Home
Yes, just owning your home is a real estate investment! Not everyone agrees that it’s a good investment compared to alternatives, but it’s definitely the most common real estate investment that exists.
You might imagine homeownership is a passive investment, but it doesn’t have to be! Especially for those who live in a house or a building, homeownership can actually support the other investments we mentioned so far.
That is because when you own more space than you need, you can comfortably rent out part of it or list it on Airbnb. Ideally, the rent you earn from this will cover your mortgage, freeing you from having any housing costs! This way, you will benefit from consistent rental income and have an easier time managing tenants and making yearly repairs.
The Bottom Line
Whether active real estate investors manage properties that generate income, do renovations that make their value appreciate in a short time, or rent out parts of their home for a profit, it’s possible to build out a successful active investment program by relying on real estate.
And what if you are looking for a more passive – set to and forget it – investment? Come back next week to learn all about passive real estate investments with AQRE!