Top 5 Ways to Make Money in Real Estate

James Ryan Jonas

Investing can be done in so many different ways but investing in real estate properties never runs out of style. It is, in fact, one of the most lucrative investment methods you can try. Lamudi gives us a lowdown on the top five ways you can effectively earn a return from your investment properties.

1. Long-term Residential Rentals

Long-term residential rental is one of the best ways to earn money in real estate. Simply put, you just have to buy a property and rent it out to a long-term tenant. But you have to remember three important things in using this strategy: location, location, location!

The state of the property is only of secondary importance. A great location is where your luck lies. In fact, a run-down property in a great location is one of the best investments you can make. Long-term residential rentals can also generate a positive cash flow, which, in essence, means the profit you’ll have after all financial obligations related to the property has been paid.

For one, you will get to enjoy a regular income stream from your tenant. The monthly payment can also be used for other possible investment opportunities. Also, the property will appreciate in value over the years, which means that you can sell it after 10 to 20 years in a much higher price. You can also increase the rental rate when inflation strikes.

2. Commercial Real Estate

To diversify your money flow, you might need to consider commercial real estate as a good  alternative to residential real estate. Real estate professionals often prefer commercial real estate more than they do residential real estate as the former provides an avalanche of cash flow and is relatively a more open field as people always need office spaces or retail spaces to operate their business.

If you are thinking of using this strategy, you have to keep in mind that commercial properties are valued differently than residential properties. Income on commercial real estate is directly related to its usable square footage. Of course, that is not the case with individual homes. The fine art of neighborhood “farming” is useful in this strategy. All you have to do is study the neighborhood and evaluate the profitability of the commercial property. Going to open houses, talking to neighborhood owners, looking for vacancies, and hiring real estate “bird dogs” to find you the best properties can especially help you make the task easier.

3. Short-term Rentals

There are two types of real estate investments. The first type is the long-term rental, which we have discussed at length above. The other one is short-term rental. The difference is that long-term rentals offer stability and assurance while short-term rentals offer real estate investors the ability to make cash quickly. Short-term rentals are becoming increasingly popular in most countries, particularly in the United States, especially with the rise of the Airbnb. Airbnb, a peer-to-peer short-term rental service, is an online marketplace that connects people looking to rent their homes to people who are looking for accommodations. The advantage for Airbnb is that it is a lot easier to find someone who will rent your property for five days than someone who will rent it for a year.

4. Fix and Flip Houses

In this strategy, house flippers just need to search for undervalued homes that need to be renovated, renovate the home, and sell it for a profit. The process seems easy as it can be summed up as giving an unwanted, unkempt house a makeover to increase its value but house flipping entails more than just being good at house makeovers. There are several hurdles you need to overcome. First, you need to have a thorough knowledge of your local real estate market.

This is a fundamental skill you must really take to heart if you want to be a master house flipper because having a high degree of knowledge in the local real estate market can bestow you an edge and an almost intuitive knowing that helps you clearly differentiate between profitable property versus non-profitable property.

As common sense dictates, one can only know the value of a given property by comparing it to other properties lying around its vicinity. Next step you have to keep in mind is that you have to buy the property at a deep discount. You have to be relentless at this as you still need to allocate money for the renovation of the house. Once you accomplish this, you have to start renovating the cosmetically challenged house by giving it basic house improvements like repainting the interior walls, replacing light switches and outlet covers, installing wall-to- wall carpets, cleaning everything thoroughly, etc.

5. Contract Flipping

Another easy way to make money in real estate is to flip contracts. All you have to do is find a distressed seller and a motivated buyer, bring them together and—voila!—you have an income. It requires no cash from your end. You do not have to own a license. You do not need any prior experience. And ultimately, you do not have to own a real estate property. Please do note that flipping contracts varies greatly from flipping houses. Flipping contracts is essentially transferring the rights of a purchase. Marketing is the lifeline of a contract flipper. You have to be an excellent marketer if you want to be successful in this method.

* Note: This post is published in partnership with Lamudi Philippines.

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.