The main aim of investing in real estate is to get profit. In order to make sure this happens, we need to know the ways on how to make money. Some of the ways include;
a) Increasing property value
This is the most common way a real estate offers a profit. When it appreciates, it increases its value. This is achieved differently depending on the type of property but it is only realized through selling.
Other ways include borrowing money to buy property to refinance the loan at a lower interest; this will lower your cost basis for the property. Other appreciation on land can come from development of infrastructure like roads, railways. airports etc.
In addition, location is plays a major during increasing property value. It would be easier to increase the value of property if it is near to a city, universities or schools due to its high demand.
Another way is by improving the homes which can spur appreciation.
b) Inflation in property value
You have to factor in the economic impact of inflation when considering appreciation. An annual inflation rate of 10% means that you can buy about 90%of the same goods the following year including the property. Inflation alone can lead to appreciation in real estate although it can be a bit of a pyrrhic victory
c) Profit from the income.
Real estate profits from the income, which is a big way real estate generate wealth by providing regular payment income. It is usually referred to as rent income and comes in many ways such as;
d) Raw land income
Depending on your rights to the land, companies may pay you for any discoveries or any added structures. This include pipelines, gravel, pits, access roads, cell tower among others. Raw land can be periodically harvested.
As an investor you can do land banking and then wait for some time before considering to develop or to sell the property. This style of investing is common in developing countries where housing is still a challenge. So what private real estate companies do, is they buy land in build, developed the vacant land then subdivide the land and start selling as plots.
e) Residential property income
The vast majority of residential income comes inform of basic rent. The tenants pay fixed amount of money every month. Which can go up with inflation and demand. This will require a desirable location to ensure that you can secure tenants easily.
f) Commercial property income
Commercial property produce income with basic rent as the most common but also there are more forms of income options. Many commercial tenants pay fees for contractual options like the right of first refusal on the office next door. Tenants pay a premium to hold those options whether they exercise them or not.
g) Residential real estate
Here are other ways you can earn income from residential estate
I) Buy and hold
It’s a more traditional way of earning income from real estate. There are many ways of accomplishing this for example you can buy a 50 * 100 plot and then hold till later date to sell after it has appreciated.
This is where property flippers specialize in adding high return fixes to houses in a short term and sell them
iii) vacation rentals
The demand of home away from home has taken off in the recent years as many travelers prefer this option.
There are several was which have been approved for making money in real estate. Appreciation, inflation and income are on top of the list. Understanding your investments, and its risk is paramount during investment.