How to Make Money in Real Estate

Published: Oct 30, 2024 by Lisa Price In Small Business Finance

Real estate agents aren’t the only professionals making money in real estate. There are other ways to make real estate income, such as with monies from rental properties or by providing property management.

Which type of real estate venture will work best for you, and more importantly, should you invest in real estate?

Types of Real Estate Business

We have selected four primary types of real estate businesses. In the following sections, we will provide a general overview of these four categories and then delve into more detailed information (Ways to Make Money Investing in Real Estate).

Residential real estate investments
Commercial real estate investments
Property management services within the real estate sector
Real estate developers

You don’t have to be a licensed real estate agent to get involved in these segments of the real estate industry but having that education and experience would certainly help. If you don’t have a real estate license, connect with a trusted person who does.

Ways to Make Money Investing in Real Estate

This is a fact. Smart people who do their research will make money in real estate.

Real estate investing takes many forms:

Residential Sales and Rental Income

You can purchase properties like condos and homes and then act as a landlord by leasing them out to earn income. Long-term residential rentals can create a significant passive income stream.

Or you can buy properties that are in need of repair, do the repairs, and resell them. This is often called Flipping.

The term Flipping implies that the transaction is a quick, easy task, but that’s often not the case. Whether you’re going to lease or resell a property, pad in extra time because renovations almost always take longer than expected. And are more expensive than expected.

Commercial Real Estate Sales and Rents

Don’t overlook the commercial side as a money-making rental property. Post-pandemic, many towns and cities are faced with a glut of empty commercial properties, from closed restaurants or office complexes to a factory or warehouses.

Similar to a residential property, these commercial spaces can be retrofitted to fit today’s market and you can begin to collect a monthly rent for each tenant.

For example, you can subdivide a large space into a number of smaller spaces and generate rental income from the small spaces. This type of venture lends itself to creative financing, such as real estate crowdfunding platforms. Entrepreneurs and other investors may back such a venture.

Real Estate Investment Trusts

Trusts are often set up to manage financial investments, but real estate investment trusts handle property – residential, commercial, or a combination. The real estate investment trust can be part of an investment portfolio, also regulated by the guidelines of the securities and exchange commission. Or it can be set up by a real estate investment group.

You’ll need an attorney who specializes in the field. As a property or properties are added to a trust, a new deed is created to reflect the new “owner” (the name of the trust). You will need a trustee who is responsible for property distribution if that becomes necessary.

An attorney or a certified financial planner well-versed in this field can investigate whether or not a real estate investor trust is a good investment strategy and the best way to structure your investment properties.

Property Value Increase

This is a Flip on a delay. For example, relying on research, you analyze how much an incoming new business will impact a local real estate market. If 700 jobs are to be created from a new industry, it stands to reason that those employees will need housing. The new business is slated to open in two years. You buy a property or property, planning to rent it or let it sit until the demand for housing increases. When the time is right, you sell at a profit.

Cleaning Services

It’s a lesser-known niche within the house cleaning industry: newly constructed homes require cleaning, particularly after the interior has been dry-walled. The seams of the drywall need taping and spackling, followed by sanding until they are smooth enough for painting. Before the builder’s punch list—which includes finishing trim, painting, and installing floors—can be addressed, the dust from the sanding must be thoroughly vacuumed and wiped clean.

Landlords may also need this service for properties that are in between tenants.

Staging

A staging company uses a set of household goods such as furniture and accents (wall art, bedding, area rugs, etc.) to give a house a welcoming look. The company delivers and removes the items needed for staging.

This can be a face-paced business, as realtors ask for quick staging before an open house, for example. Staging is most often used to prep a house for a successful open house.

Photography

We’ve all seen the images used to help sell a house. Showcasing a property with good photos takes a lot of time. Increasingly, realtors like to use drone footage to show the location of a real estate property.

Foreclosure Specialty

When a company becomes owned by a bank or other hard money lenders, it often becomes listed with a real estate company. But the foreclosed property may be cluttered with items the previous owners have left behind. It may also be dirty.

There are a couple ways you can make money by working with foreclosures:

You can become the management agency that cleans it up, readies it for sale, and keeps the grounds mowed or plowed until it sells.

You can be the person who buys a foreclosure as an investment property, to either rent or sell. There are investors whose entire real estate portfolio of rental real estate is comprised of foreclosure properties.

Typically, each real estate company will have one or two agents who handle foreclosures. This can be a slippery slope, as foreclosures may be complicated by liens on the property for back taxes or utility non-payments. You’ll want a good title search.

Property Management Company

A company can take care of indoor tasks, outdoor tasks, or both. Their responsibilities may include tenant screenings (such as credit and criminal record checks), significant property maintenance (like electrical and plumbing work), and even the collection of rental income. Additionally, a property manager can manage outdoor maintenance tasks like mowing and snow removal.

Home Warranties/Inspections

This is a great option for a retired contractor. Often, property values are based on inspections, which detail things such as the type of electrical service, age of roof and windows, condition of foundation, and more.

Factory and Commercial Rehab and Design

Many empty factories and other commercial buildings could thrive if retrofitted to be more up-to-date. Once you know your local market, you may be able to identify a need and fill it.

For example, such properties can become “incubators” or “hubs” for businesses which benefit by grouping. For example, an empty shoe factory can be sectioned to hold a couple restaurants, small commercial ventures and day care.

A Combination of These

A crucial element of successful real estate investing is diversification. For instance, you can pair staging with photography and charge separately for each service! You can also purchase rental properties from foreclosure listings. Additionally, you can buy and furnish these properties with essential household items to utilize for short-term or vacation rentals, like those listed on Air BnB or VRBO.

Things to Consider Before Investing in Real Estate

Local housing and commercial market
The local predicted job market
Your tolerance for risk
Your goals – quick profit versus steady income

You may be able to purchase a property with a minimal down payment. For example, for a residential loan, you sometimes only need 5% of the purchase price (or 20% for vacant land). Your monthly mortgage payment may include the property taxes, calculated by the month. Interest rates impact the amount of payment.

In other words, if you have a good credit score, you can begin to build your real estate assets and purchase your first investment property with minimal upfront costs. Whether you plan to flip houses or rent out office buildings, it’s essential to carefully estimate your monthly positive cash flow. Therefore, be sure to thoroughly review your numbers to prevent real estate investment mistakes.

How to Get Started in Real Estate Investing

Decide whether or not you want to buy and sell, buy and rent, or choose another type of involvement (management, staging, etc.) in real estate.
Choose which type of property, commercial or residential.
Get preapproved for private lending.
Learn the punch lists for inspections and appraisals so you’ll know what to look for in a property.
Network. For example, to set realistic rehab goals, enlist a local contractor for estimates. Establish relationships with key players such as inspectors, appraisers, agents, and lenders.