Real estate investing can be one of the most lucrative and rewarding investment strategies in the modern world. With tons of real estate opportunities out there, you have an ocean of possibilities to start your real estate investment career. It is probably not a full-time career from the start, but once you start building a decent portfolio, you can slowly begin moving all your time into your real estate investment business.
Real Estate investment is not rocket science. There is not much science in a property. It’s property, so very straightforward. Still, many people don’t realize the multiple earning potentials a property can give you. And also the different business models you can find in the real estate industry. From trading to owning, from renting to buying, from investing to converting, you can make money every step of the way in real estate.
In this article, I want to go through 5 ways to earn an income in real estate investing. Some of them may seem very straightforward, and I would agree with you. The difference is that only 20% of people will take real action in turning the knowledge into actual execution. In my teaching and training career, I learned that most people have the information already but somehow are holding back on taking action.
If this article can help 20% of people start their real estate investment career, it would be a great opportunity. So let’s get started:
Start as a Real Estate Agent
I’m not kidding. The best education and exposure to real estate you will find as a “trader” of real estate. That’s what technically a real estate negotiator is. They trade between the sellers and buyers (or landlords and tenants) and take a commission for their services in return.
You might be thinking, what does this have to do with investments? In case you didn’t know, a real estate negotiator doesn’t get paid a salary. They get paid in commissions. That means that every minute, hour, day, the month is an investment in themselves. They need to source for the property, spend hard ringgits on marketing, negotiate with a high number to find the right buyer eventually.
Is it worth it? Yes, you get to see the real action happening in front of you. You get to learn how to source for a property. It comes with analyzing areas, property types, and the legal system. You get to connect with other great investors, in which you get to learn how they consider a good investment. Once you get some excellent results, you have enough money to start your real estate investment career.
A lot of the best real estate investors I know started their careers as real estate negotiators. Some of them even grew to become developers or REIT investors. We will talk about REITs a little later.
Starting as a real estate agent is an investment in yourself, your network, and your knowledge to get you ready for a thriving real estate investment career.
Short Term Rental With Other Peoples Property
Another great way to start your real estate investment career is by short-term renting part of your home or other people’s homes via sites like Airbnb and homestay. It’s a great start to get your experience as a real estate property service provider. You don’t have to take on a long-term tenant, Airbnb at least somewhat prescreens potential renters, and the company’s host guarantee provides protection against damages.
If you rent out a room or particular space in your property, you can keep most of the profit you earn from the fees you collect. In case you rent out (and manage) other people’s property, you need to agree to a fixed management fee or a cut from the fees collected.
Many people out there own multiple properties. They don’t have the time and expertise to source for short-term tenants. So you can offer it to them as a service. It’s a great starting point, and you will get the opportunity to earn an extra income.
May I give you a little warning? Don’t underestimate the time that goes into a short-term rental. Although it may seem very straightforward, you are still in the service business. That means that many tenants might need additional services to build a company with a reasonable satisfaction rate. Your tenants expect a good service for the money they pay, so they will also rely on your customer service, reply time, and good communication skills.
Long Term Rental Properties
One of the most favorite real estate investment strategies is owning rental properties. Owning rental properties can be an excellent opportunity for individuals with do-it-yourself (DIY) and renovation skills and have the patience to manage tenants. However, this strategy does require substantial capital to finance up-front maintenance costs and to cover vacant months.
The return on investment can also take a while before you get to see some real extra cash coming in. In this case, there are two ways you earn money:
1)The first way is by making a profit on the rental income. So very simple, you collect the rental. After you deduct the mortgage, maintenance fee, any additional cost, the results will be your profit. This profit is your net earning on rental income. Usually not very high, and in some cases, it’s even negative. Negative means that the rental income does not cover the cost of owning the property. It doesn’t always need to be wrong because that brings me to the second way people earn an income through rental properties.
2)The second way would be capital appreciation. As you invested in a property, the value of that same property grows over a long period. I want to emphasize a “long period.” Most people hope this can be done in a short period, which almost is never the case. Unless you become a professional “house flipper,” what we will get to in the next strategy.
When you play the long-term game with rental properties, you can rarely go wrong. Unless you buy a property too expensive and can’t find a tenant for an extended period. It would be best if you believed in a good area with a high demand for new tenants. Invest in value so that the investment can grow even more.
“Professional” House Flipping
Intentionally I have added the word “professional” to the house flipping. The reason is that there are so many unprofessional house flippers that dramatically go wrong with this strategy. From all the strategies you find in this article, I would say this is the riskiest one.
The importance of a good house flipper is the speed at which you can flip the house. So many “professional” house flippers usually already have a buyer ready before buying the home they want to flip. You might ask, how do they manage to get a buyer before even acquiring the inventory. Very simple. Network!
Yes, they have a good network of investors they know would buy a good investment if offered one.
The second critical importance of a good flipper is not when you sell the property but when you buy it. The flipper makes money when he acquires the property, increasing the profit potential between what you pay and how much you eventually sell. That means you need excellent negotiation skills to make your profit even greater.
Negotiations is an art, one that not many people master. In the property line, things can get very emotional. We talk about people’s homes. So when you come in and make a 20,30,60 percent below market offer, things can get very intense. People will not want to be friends with you after the transaction.
Some house flippers use the distressed situation of the seller to get even better prices. People that lost their job, getting a divorce or moving out of a country. So, in the end, you must have a heart of steel to play this game. But it can be very profitable if you play the game correctly.
Invest in REITs (Real Estate Investment Trusts)
A final but no less fun strategy is investing in Real Estate Investment Trusts (REITs). A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties.
REITs are bought and sold on the major exchanges, like any other stock. REITs allow you to invest in real estate without physical real estate. Compared to mutual funds, they’re companies that own commercial real estates such as office buildings, retail spaces, apartments, and hotels.
REITs tend to pay high dividends, which makes them a typical investment in retirement. More important, REITs are highly liquid because they are exchange-traded. In other words, you won’t need a real estate negotiator and a title transfer to help you cash out your investment.
Investors who don’t need or want the regular income can automatically reinvest that cash to growing their investment further.
Many REITs are specialized in corporate investments, things like big office buildings, malls, and hotels. It allows the small investor to own a small piece of a significant real estate portfolio. Things that are usually not feasible for the individual investor. It’s a very leveraged system, as the multiply effect of investment (more investments increases valuation) plays a role in your investment return.
The downside is that you don’t physically hold any of this real estate. Also have no say or influence on any purchases or choice of sales. You are simply investors that only seeks dividend on their investment.
In conclusion
The best real estate investments are the ones that best serve you, the investor. Think about how much time you have, how much capital you’re willing to invest and whether you want to be the one who deals with household issues when they inevitably come up. If you don’t have DIY skills, consider investing in real estate through a REIT. If you don’t have the capital yet, you can always consider starting as a real estate negotiator, which will give you experience in the real estate world. Whatever you do, make sure to listen to both your heart and your mind. If they are both aligned, it will be the best decision. Good Luck!
