Real estate is a fantastic wealth-generating vehicle and should be a welcome addition to any investor’s portfolio. Real estate is unique because, unlike other assets, it appreciates over time. So, as long as you maintain your property, it will probably remain valuable over time, which is a significant advantage. This way, owning real estate adds wealth to your name by simply holding on to it.
Also, you may earn passive income by buying or holding property, or you can generate active income by flipping and renovating. To be successful in any of these endeavors, you must first understand how real estate works. The substantial cash requirement may deter some people from entering the real estate market. However, thanks to technological advancements, investing in real estate no longer necessitates a large sum of money. Even if you don’t have a lot of money, you can invest in it.
Regardless, if you’re new to the real estate business, you should do your homework to learn how things work. Property ownership necessitates some management. Thus, purchasing or renting a home does not imply that you will earn wealth. Patience and playing the long game are required in real estate. So, here’s how to use real estate to increase your wealth.
Real Estate Investment Trusts (REIT)
REITs are an excellent investment for folks who do not have a lot of money. To invest, you must purchase stock. The majority of them are publicly traded. Real estate investment trusts (REITs) allow you to invest in real estate without really owning any. Companies with significant real estate holdings typically control and manage these businesses.
There are quite a few REIT options you can choose from currently on the market. But you may need to do your research to find the right fit for you. Every REIT may be organized differently. However, it’s often the case that they pool their financial resources to finance more real estate projects like building a mall or rental apartments. Then, as the shareholder, you will be entitled to receive some proceeds from rental income in the form of dividends.
1031 Exchange
This code comes from the Internal Revenue Service section 1031 of the Internal Revenue Code (IRS). It permits you to apply the tax code 1031 Exchange, which allows you to reinvest the proceeds from selling your property without paying capital gains tax. And the taxes will be deferred till you sell your next home. The IRS authorizes this because it considers a straightforward exchange of one real estate property for another. As a result, it’s a wonderful strategy to grow your wealth by deferring tax payments. If you’re interested in trying this out, just look for a 1031 Exchange Company that will guide you through the whole process.
Vacation Rentals
It is perhaps one of the best investments you can have if you don’t like the idea of long-term rentals. One of the biggest things that have driven the growth of vacation rentals is the boom in tourism.
It’s not the case that not every tourist wants to visit a hotel as they are expensive. People now know that vacation rentals are an excellent alternative for lower prices. Also, it helps if you own property in a good location. So, if you have a vacation apartment in an area like Los Angeles, for example, you can expect that you will be able to market your property and make good money from it. It’s because there’s a lot of traffic in that specific area, so there’s a high demand for properties.
Flipping Properties
Flipping houses is a very significant way to make money in real estate. You buy a home, make renovations or upgrades, and then sell it for a profit. While that may sound simple, realize that it’s not easy. Plus, it’s a very high-risk way of making money in real estate. There’s no guarantee that you’ll make money from your investment because, for example, if you buy the wrong house, you could make a loss because the costs of renovating could eat up the profits, and the house’s value may fail to compensate for it. Or, if you buy a house in the wrong neighborhood, even if it’s nice, you may struggle to sell it for a high price.
So, to be a successful property flipper, you must have a fair amount of industry knowledge. Therefore, you must be prepared to do extensive research before purchasing. Plus, it would help if you prioritized inspections because you don’t want to buy something only to discover that there are hidden issues you overlooked during an inspection.
Appreciation
As mentioned earlier, real estate appreciates over time. This feature makes it a unique investment. Yes, some things, such as a recession or natural disasters, could negatively affect a property’s value. But if you take care of the property, it will keep its value. You’re generating wealth if you buy and hold a property.
While you can’t count on appreciation to make you loads of money, it’s still a source of wealth. For example, say you bought a property fifteen years ago for USD$300,000, now valued at USD$340,000. If you sell the house now, you will make a profit of USD$40,000. That’s wealth building.
Hard Money Lending
Now, this option will require that you have some money on hand. You may not need excessive capital because you could still make smaller loans. If you have some capital, you could become a hard money lender by giving loans to people who usually wouldn’t qualify. These are people who may not have enough credit to get a loan from the bank. So, it’s a very risky investment, but you can charge high-interest rates. These loans are for brief periods, so the potential for quick returns is high. All you need to do then is identify the suitable investments.
Short Sales
In order for a short sale to take place, the property owner must be behind on their mortgage payments but not yet in foreclosure. All parties concerned, particularly the bank, should agree on the terms of such a sale because they will be selling the property for less than what is due. It is a terrific method to make a quick buck, but it may include a cash payment, which may be required at short notice.
Furthermore, if you negotiate successfully, you have a good probability of getting a good offer. It depends on how urgently they require the funds, as they may like to wait for another buyer. However, if you are successful in closing a short sale, the gains can be huge. Remember that getting a good deal is the most important thing. That is, obtaining a favorable rate and a sound property. You may not always get the perfect house, but it’s worth aiming for it because you don’t get what you don’t aim for.
Contract Flipping
It is also a great way to make money without investing too much capital. Instead of flipping houses, you’re flipping real estate contracts. You’re essentially playing the role of a middleman who brings the buyer and seller together. All you need to do is find a distressed seller and a willing buyer, then bring them together.
Ideally, it would be best if you found both the buyers and sellers beforehand to give yourself some assurance that you’ll be able to close the deal much faster. Finding buyers and sellers isn’t easy. But you can start by identifying homes that are behind on their mortgage payments or those that are vacant.
Lease Options
Buying a property with a lease-to-buy option affords you a lot of flexibility when making a home buy. It’s simply an option to buy at a later date, not an obligation. You could always sell your rights to purchase to someone else should you change your mind. Lease options are especially beneficial if you’re buying a home in a bull market. Plus, it’s also a great option if you’re still building credit, saving on your down payment, or you’re just low on cash.
Commercial Real Estate
While commercial real estate may necessitate a considerable financial investment, the potential for profit in this form of property is favorable. Although the initial financial needs are significant, the potential returns are considerably higher. There are numerous commercial real estate developments to choose from; offices, shops, and shopping centers are the most common. You can make money from rent once you’ve purchased commercial property. Furthermore, your commercial assets will increase in value over time.
Conclusion
Real estate is a substantial investment. Economic activity can affect real estate just as much as other assets you may have in your portfolio. You must stay the course, regardless of ebbs and flows in economic activity. Therefore, real estate investments need some management and knowledge to generate wealth from it. Plus, if you’re going to generate wealth, realize that it will take time. So, you have to be patient.