Want to Make Money and Build Wealth? Then Real Estate Might Be for You
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- 7-8 min read
Steph Mickelson Contributing AuthorCloseSteph Mickelson Contributing Author
Steph Mickelson is a freelance writer based in Northwest Wisconsin who specializes in real estate, building materials, and design. She has a Master's degree in Secondary Education and uses her teaching experience to educate and guide readers. When she's not writing, she can be found juggling kids and coffee.
Amber Taufen Former Managing Editor, Buyer Resource CenterCloseAmber Taufen Former Managing Editor, Buyer Resource Center
Amber was one of HomeLight’s Buyer Center editors and has been a real estate content expert since 2014. The former editor-in-chief at Inman, she was named a “Trendsetter” in the 2017 Swanepoel Power 200 list, which acknowledges “innovators, dealmakers, and movers-and-shakers who made a noteworthy impact over the last year” in real estate, and her assessment of revenue and expenses at the National Association of Realtors won a NAREE Gold Award for “Best Economic Analysis” in 2017.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Conventional wisdom says that buying a home is a good investment. There are multiple ways to make money in real estate, and if you do it right, you can diversify your investment portfolio and build wealth over time.
Housing prices have risen steadily since the 1940s, many times outpacing inflation and wage growth. In 2008, the financial crises and the housing market crash created a more volatile real estate market, but since then, home prices have continued to trend upward. In 2021, home sales showed the strongest performance since 2006, with more than 6 million homes sold.
Even as the coronavirus pandemic changed daily life as we know it, real estate investments saw growth as some people turned properties into Airbnbs to give travelers options beyond a hotel stay or took advantage of the red-hot market to fix-and-flip a home.
There are always risks involved in any kind of investment, but real estate offers a way to invest both for the long-term while also potentially seeing short-term gains in the form of rental income or a post-flip profit.
Making money from real estate doesn’t have to mean a big upfront investment. Strategies like increasing home value or renting out a spare room don’t require a lot of money, but they can create financial returns. And if you do want to invest a large chunk of money, there are ways to do that, too.
We investigated ways to make money in real estate and reached out to Chris Barnett, a Birmingham, Alabama, agent who specializes in helping investors find the right property and has worked with investment properties of his own. Here’s what we found out!
Leverage what you already own
Increase your home’s value
Houses will appreciate over time, so whether you think you’ll stay in the home until you’re old and gray, or you want to move into something with more (or less) space later, you can increase your home’s value to make a profit when you eventually sell.
Real estate will likely continue to increase in value over time, so even if you simply buy a home to live in now and sell later, you will likely make some money on the investment. Take Warren Buffet, for example.
He names his third-best investment as the Omaha, Nebraska, home that he bought for $31,000 ($276,700 in today’s dollars) in 1958. The home’s estimated value today is $652,619. That’s a growth of just over $375,000 in 63 years … obviously not a get-rich-quick scheme, but a sound strategy nonetheless.
Rent out a space in your home — or create a new space
If you want to make money with your existing property, is there a space you could rent out on Airbnb or VRBO? If you already have more than one property, like a lake home or ski getaway, you can become a host and make money when you’re not staying there.
You can even remodel smaller outbuildings on your property to create a space where people can stay. People enjoy unique stays, so you can get quirky with it — like this cabin on a working Icelandic sheep farm!
Plus, if you have something extra special to teach or show guests, you can earn even more by offering Airbnb Experiences. BRB, I’ll be taking a clear kayak tour through Rock Springs.
Create a rent-to-own agreement
If you’ve purchased a new home and are wondering what to do with your existing home, creating a rent-to-own agreement with a tenant could be a good way to make enough money to cover the new mortgage and make a little passive income while they work toward buying the home.
Buy a piece of real estate specifically as an investment
Buy a house as a short-term rental
While you can use your existing home as an Airbnb, you can also buy a home specifically as a short-term rental. This strategy has become increasingly popular as Airbnb and VRBO have made short-term rentals accessible to both homeowners and travelers.
Airbnb alone boasts 660,000 listings in the U.S, and way back in 2017, Airbnb hosts were averaging $924 each month (this is still the most-cited statistic for Airbnb income, but it’s likely that number has gone up).
Barnett notes that Airbnbs as an investment “flourished under the pandemic scenario.” He says that “the pandemic kind of shifted everybody from a hotel type of travel and stay accommodation to the Airbnb, which brought them a different sense of security,” adding that “it brought a lot of character to your trips and traveling.”
Since 2020, he has seen people gravitating toward interesting homes with unique features that can be rented out, “or buying homes that had a space that could be an Airbnb.”
Find a property to use as a rental
Short-term rentals require a significant amount of active management, from managing the bookings to cleaning the space in between stays, and while renting out a property as a landlord also comes with a substantial amount of responsibility, it’s more hands-off than a vacation rental.
When Barnett is helping someone find a home that they will eventually rent out, he says that he works to coach them through the process, especially if this will be their first time as a landlord. He cautions that it’s incredibly important to have a plan in place if you’re going to buy a home to rent out long-term.
It’s important to know “how to pick good tenants to make sure you’ve got tenants that are going to be solid with the home and not be a risk to you.
“And then having systems in place when you do rent a house — like if the toilet breaks, what are you going to do if you have to have someone fix it. What do you do when the HVAC needs to be serviced?” Having systems and processes to deal with these scenarios will be critical as a landlord.
Become an HGTV star…or just flip a property
There are tons of house-flipping shows out there, and with good reason. We all love to see a home start out as a dud and end up a stud — selling for much more than the purchase price.
Buying a home, fixing it up, and then selling it — otherwise known as “flipping” — can result in a high profit. If you do it right. As of the first quarter of 2019, the average gross flipping profit (which doesn’t include expenses like the mortgage and repairs) was around $60,000 above the median purchase price of $155,000, according to ATTOM Data Solutions.
Having flipped homes himself, Barnett knows a thing or two about how to make money this way. Setting up a business plan and doing a risk assessment are important to successfully flipping a house, along with understanding what it will really cost, and having a margin or backup plan for unexpected expenses.
Keep in mind that unless you pay cash for the house, you’ll have to make mortgage payments while you’re fixing it up, so that should be factored into the overall business plan.
Whether you’re just starting to invest in real estate or you’re a seasoned investor, finding an agent who specializes in real estate investments can go a long way towards making the venture a successful one. An agent can help you assess the risk involved in a specific piece of real estate as well as give you insights on the neighborhood and the costs required to finish the project before selling.
Invest in land
Land can be another way to get into real estate investment. There are a number of different ways to use land as an investment, including generating income by leasing the land to farmers, either for crops or grazing their animals; splitting the land and selling it as smaller parcels; or buying a less-than-desirable plot and cleaning it up to sell to someone who wants to build.
Let someone else take the risk while you make the money
OK, that’s oversimplified, but real estate investment trusts (REITS) and crowdfunding platforms like Fundrise, Crowdstreet, and RealtyMogul can get you into real estate investment in a relatively affordable and low-risk way.
Nareit, an organization that advocates for REITs, explains a REIT as “a company that owns, operates or finances income-producing real estate. REITs provide an investment opportunity, like a mutual fund.”
As an investor, you’ll receive dividends, and “one of the best ways to receive passive income from REITs is through the compounding of these high-yield dividends” according to Investopedia.
Crowdfunding sites pair individual investors with developers or other real estate professionals. There are many different sites that offer different types of investing.
CrowdStreet, for instance, focuses on commercial real estate (CRE), and Investopedia rated FundRise as the best site for beginners.
Keep in mind that with real estate, as with any investment opportunity, there is always the risk that you will lose money — but there is also the potential to make money and build wealth. Do your research and invest wisely.
Header Image Source: (Matt Hardison / Unsplash)