Tuesday, June 4, 2013

3 Ways To Make Money From Real Estate

Do you know all the different ways you can make money from Real Estate ?

Do you think the truly wealthy ignore any of these income streams ?

Chances are you don't and no they never ignore all the income streams !

Building Real Estate Wealth

Real Estate offers the average individual an abundance of opportunities to add to their wealth building efforts.
There are three basic forms of profits from Real Estate investments. Many investors do not realize how to maximize their profits in all three ways from one single investment. Let me show you all three ways so that you can decide how you will maximize your profits.

Profit Builder #1

This first way of making money in Real Estate is what most people look at when buying a property. It is a thing called Capital Gains. It basically means you buy a property, do some repairs or renovations and sell it for more than you paid for it. Some call it flipping and depending on the market conditions during your hold period, it can be quite profitable.

The big problem with this form or Real Estate investing is that you totally ignore the other two forms of income that you could be making. In my opinion this form of "flipping" is more speculation than truly investing. If markets are in a decline you could lose a lot of money. Let's look at the other ways.

Profit Builder #2

The second way of making money in Real Estate is Rental Income. You buy a property, fix it up enough to make it rentable to good tenants and collect rent each and every month. The key to making money here is that you must have positive cash flow. In other words what you collect in rent must be more than what you pay out each month in expenses.

This form of Real Estate investing in much longer term than "flipping" as shown above. For this reason, you are not so concerned about the short term direction of the market so long as you have positive cash flow each month. Your bigger concern here is the quality of your tenant and how much damage they will do to your property.

Profit Builder #3  

The third way of making money in Real Estate is Equity Accumulation. You buy a property, fix it up enough to make it rentable to good tenants and then take your money out by getting the biggest mortgage you can. This way you can use your money to buy another property or other investment. Let me explain this a bit further to clarify how money is made.

The key here is to still have positive cash flow after making your mortgage payment each month. If you have chosen your property and your tenant well this should be the case. Most mortgages contain two components, interest and principle repayment. The principle repayment is basically the amount of the loan that you pay off each month. This amount will increase over time based on the amortization of the mortgage.

This may seem confusing at first, but simply put, your tenant is paying off a piece of your loan every month. This makes the portion of the property that you own more each month. Therefore your equity (how much you own) will continue to grow over time.

What To Do  

You must look for properties that will give you a positive cash flow after all expenses including management and mortgage costs. Using others to manage your properties will free up your time and using mortgages will free up your money. More time plus more money equals more opportunities to grow your wealth.

This process can be repeated any number of times anywhere in the world you choose that offers the best opportunities. This is how the truly wealthy continuously grow their wealth, one investment at a time.

In summary, buy a property, fix it up a bit, rent it out, get a mortgage, sell it when the time is right. Repeat, repeat, repeat. Reinvest your profits in other opportunities. Continuously grow your wealth.

As always, I welcome your comments and suggestions for future topics.
    

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