I've been a conservative investor who has been very pedestrian along the path to becoming a mogul. I buy well-located buildings and plan to hold on to them forever. I learned most of what I know from books or from observing my fellow investors.
The following list is from an investment perspective. It doesn't include other ways individuals make money by performing real estate services such as brokerage, legal services, insurance brokerage, mortgage lending, consulting, appraisal, architectural, or engineering services.
21 Proven Ways To Make Money In Real Estate Investing
1) Wholesaling – Buy at a discount from market and sell at a higher price. The sale can be an immediate one (a flip), or it can be made shortly after you purchase. This includes putting an underpriced property under contract and assigning the contract to another buyer for a profit.
Many investors do this. You are looking for a real estate bargain here. The bargain might come from a foreclosure situation, an estate sale, an underpriced property, a HUD auction, a bankruptcy, an IRS sale, or a tax scavenger sale, to name a few possibilities.
The key is to buy well under market, so you have room to sell at a higher price and put some money in your pocket.
2) Rehabbing – Buy at market, fix the property up, and sell it at a profit. A lot of investors I know do this. They seek out a well-located, run-down property and then judiciously upgrade it and raise its value. Sometimes they sell it, but most of the time they keep it for income and future appreciation.
Some developers take this a step further. They purchase a property, tear it down, and build a new structure, which they then sell for a handsome profit. You obviously need to know what price the location will support before doing this.
3) Property Management -Buy at market and then improve the property by better management. You either increase income or reduce expenses. Rather than improving the property through structural or cosmetic changes as above, you increase the cash flow through better management.
On the revenue side, you might simply increase rents, include laundry service and vending machines, or charge more for parking. On the expense side, you might find ways to decrease utility costs, repair costs, management costs, etc.
The increased cash flow results in increased valuation. With this approach, you are increasing both the cash flow and the value of the property.
4) Purchase Turn Key – Buy a winner. Here you buy a property that produces an acceptable return on investment and appreciates over time. You make cash flow now and build equity for the future.
5) Gentrification – Buy at market value in a hot area or market and wait for increased cash flow and appreciation. The four-unit I bought near De Paul University is an example of this. It lost money in the beginning, but appreciated well beyond my greatest expectations.
6) Property Conversion – Convert an existing property to a higher and better use. Some examples would include:
* Buy a large parcel of land at one price and then subdivide and sell it off in pieces adding up to a higher price.
* Convert an apartment building into condominiums or into an office building.
* Convert a vacant industrial building into loft apartments.
7) Wrap Lease Buy – Lease a property with an option to buy at a set price. You then re-lease it and eventually sell it for a higher price than your option price.
8) Wrap Lease Rent – Lease a property at one rent, re-lease it to someone at a higher rent, and pocket the difference. One of my landlord cohorts is notorious for his low rents. He dreads vacancies, and will do almost anything to get his apartments rented.
His rents are about 20% under market. One day I offered to rent one of his apartments and told him I'd pay one year’s rent in advance. I told him his rent was ridiculously low, and that I was willing to pay the whole year's rent up front in order to have the opportunity to lease it to someone else for a much higher rent.
He mumbled to himself, but wouldn't rent it to me. He chose to give some tenant a bargain. Leasing at one rent and re-leasing at a higher rent can often be done on commercial properties.
9) Wrap Around Mortgage – Buy at a certain price with seller or assumable bank financing, and sell at the same price, but with a higher interest rate. You make money on the interest difference. This can be referred to as a wrap-around mortgage, or an all-inclusive deed or trust.
10) Tax Deeds & Notes – Buy delinquent property taxes. Depending on the area and the laws of that jurisdiction, you can earn interest rates well above the norm, and have the opportunity to foreclose.
One of the wonderful things about real estate investing is that it offers so many different ways to make money. I have developed this list above describing several ways you can make money in real estate. Maybe you'll get a new idea from it. Still need more ways to make money in real estate? I will discuss the remaining 11 ways in Ways To Make Money In Real Estate Investing Part II.