Though many investors tend to feel that the real estate market might be a risky move, it is actually one of the top wealth-producing industries. While many feel that it takes a significant amount of capital and the prime location to make money off their investment, there are several other ways to make your real estate venture profitable. You will need some financial resources in place to get your development or property purchase started, but it is possible to make money from the beginning if you know what you are doing.
Consider the success of Roger O’steen from Jacksonville, Florida. From its humble beginnings in 1989, the housing communities orchestrated by the Roger Osteen Jacksonville development team are focused on sustainability, livability, and environmental sensitivity. You can have these same award-winning recognitions if you know how to navigate the real estate landscape.
1. Generating Cash
There are two primary ways to generate cash when you invest in real estate. You can have access to passive income by buying and holding. Still, you can also create active income if you invest in renovations, property flipping contracts, or putting together development deals.
Each area holds significant potential so long as you are not intimidated or put off by the challenges that may lie ahead. However, you can use any number of the following strategies to make money in real estate, depending on the situation you find yourself in.
2. Long-lease Residential Contracts
There is a lot of stability in a real estate venture that makes the most of people’s need for affordable long-term housing opportunities. Long-term buy-and-hold residential opportunities can be a good source of income when your property is in a prime location. The overall value of your asset can increase over time, but so can the ability to quickly find a long-term tenant.
If your funds are limited, investing in a run-down home in a good location could actually be the best investment for long-term potential. You will need cash to make the initial purchase, but a little effort can quickly return much better dividends.
3. Lease-to-Buy
If you are not ready to invest a significant amount of money into a single property, you can always look into a lease-to-purchase property. Since the market is on an upward climb, this is a practical way to create a pre-set price for a property that could potentially be worth much more down the road.
You do not need to hang onto the property, either. There may be a better opportunity down the road to sell the purchase rights to a third party. This option provides flexibility with little commitment to a real estate investment.
4. Home Flipping and Renovation
It is not just television stars on home improvement networks turning a profit on the fix-and-flip approach to real estate. However, making money from these investments takes a bit more work than you typically see on television.
Not selecting the right home can have you paying out more than you will hope to see in return when you put the home on the market. The best tip you could hope to receive is to look for the ugliest house in the best neighborhood. This is where you will find the most value.
5. Commercial Real Estate
With the right funds and the right location, you can move past residential opportunities and look for commercial investments. You can add to existing properties, renovate or upgrade outdated office space, or become a consultant for a new development. The net income potential for any of these decisions often yields much more than a similar initial investment into a residential property.
Always look for ways to add value to an existing location if you want to maximize income generation. Real estate does not have to be a risky investment. With the right knowledge and adequate financial resources, you can find yourself making money through buying, selling, renovating, or consulting residential and commercial properties.
6. Buy Below Market Value
Buying property below market value is an extremely fast way to build equity in real estate. Of course, this usually requires extensive research, negotiation, and, in some cases, patience. However, the rewards can be huge.
Look for distressed property, foreclosures, or short-sale listings. These properties tend to sell below their market value, as the sellers have no other choice but to sell quickly because of their difficulty. Another way is through an auction or off-market deal, simply participating in it and acquiring the property at a discount.
When you are ready to make an offer, you will want to ensure that you have a robust comparative market analysis to know that you are getting the best value based on your current worth.
7. Add Value
Another excellent way to fast-track equity is to improve your property. Strategic renovation can significantly add value to your home and instantly retain equity when completed.
Focus on renovation projects that have a good return on investment, like modernizing kitchens and bathrooms or curb appeal landscaping. Minimal renovations, such as new paint, upgraded fixtures, and refinished floors, can truly be enormous.
Determine what improvements appeal to homebuyers in your neighborhood. Work with contractors to keep renovation costs as low as possible and maximize the improvements.
8. Make a High Down Payment
Another simple and effective way to start with more equity in your property is to make a larger down payment when you purchase it. This calls for more initial capital, but the effect is to borrow less, which will decrease your mortgage and increase your initial equity stake.
Reduce unnecessary expenditures to save up for a bigger down payment or find other financing options, like HELOC, to fill in the gap.
If possible, aim to pay at least 20% of the down payment. This will prevent the need to pay private mortgage insurance and build up equity in the house immediately.
9. Choose the Shorter Mortgage Term
Choosing to pay your mortgage over 15 years instead of 30 allows you to obtain equity much faster. Generally, a shorter loan term means bigger monthly payments, but in this case, a bigger fraction of these payments will be applied to the principal instead of interest.
Compare the monthly payback amounts on different loan terms when you finance a mortgage to see if you can afford to pay off your mortgage in half the time. The payments will be larger, but your home will be paid for in half the time.
You can apply even more equity-building power by paying extra on your mortgage each month or having a windfall like a tax refund applied directly to your mortgage balance.
10. Rent a Part of the House
If you own a multi-unit property or have extra space, renting out a part of your house can provide you with another source of income. That rental income can then be used to prepay your mortgage, which builds equity fast enough.
Lease the spare bedroom or apartment like Airbnb or let it stay long-term for a more predictable monthly income flow.
Ensure that renting is allowed in your local laws and homeowners’ association rules if you live in an area that has one, and screen applicants so that you can minimize your losses.
11. Refinance for a Lower Interest Rate
This means refinancing at a lower interest rate compared to your current loan can save you hundreds or thousands of dollars in monthly payments. These payments can go towards the principal balance, speeding up your equity over time.
Track the current mortgage rates and look for a lender who will support a discussion of available refinance options. Be sure to account for the costs to refinance, including closing fees, so that savings are maximized rather than spent.
Refinance when rates drop by at least 1% compared to your loan rate. This can save you a lot of money in the long run.
12. Buy in a High Growth Area
Buying in fast-growing or gentrifying locations may bring fast equity growth due to the immediate rise in property value. These places often gain due to new infrastructure, improved demand, and rising house prices, making them perfect for quick equity growth.
Research up-and-coming neighborhoods, look for places with new businesses, schools, or transportation hubs, and invest before property values skyrocket.
Be proactive in finding high-growth areas by attending city planning meetings or reading long-term development plans. Timing is everything, so look for an area quickly when you have a good sense of it.
Conclusion
You, too, can build equity quickly in real estate if you have the right strategies in place. With a below-market purchase, shrewd improvements, and leveraging off of mortgage terms or rental income, you can multiply the value built in your property many times faster than it would otherwise build. Scheduled maintenance and strategic investment in areas that are expected to have higher growth also add to the long-term building of equity. With these tried-and-tested strategies, you will certainly be off to a great start in building real estate wealth at a much faster pace and with greater effectiveness.