Real estate is a great industry to enter and invest in because it can generate a lot of wealth for the average person. There is a lot of flexibility in real estate because you can be your own boss and work your own hours. You do not need a significant amount of capital to invest in real estate because there are many ways for you to earn profits in real estate with no money or little money to invest.
Even if you are new to real estate or know only a little bit about the industry, you can still learn how to make money in real estate by utilizing the right investment strategies effectively while analyzing potential risks.
However, it is extremely difficult to get a good return on your investment if you do not know what you are getting into or do not thoroughly understand real estate investment strategies and other ways to make money in real estate.
Additionally, you don't need good credit to make money in real estate because there are strategies that do not require it. You can even start buying properties with poor credit if you learn the right investment methods.
Having your own money to invest in real estate isn't essential because you can borrow money from sources, such as hard money lenders, to get the finances you need.
In addition, you can form partnerships with other investors to invest in real estate properties if the total property cost is beyond your reach. There are many misconceptions about real estate investment strategies because people believe that these strategies require you to have a lot of capital to invest in.
In this Ultimate Guide, we'll cover several of the best ways how to make money in real estate to put you ahead of the pack.
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The primary way how to make money in real estate as an agent is by earning commissions when a sale closes. Real estate agents earn sales commissions from buying and selling properties for clients. The commission to each side is usually from 2% to 3% of the final sales price. Agents can make significant amounts of money just from sales commission!
Also, instead of directly representing the buyer or seller, a real estate agent can refer the client to another real estate agent. This is called a referral agreement.
In exchange of the referral, the referring agent can earn 25% of the gross commission from another agent that works with the buyer or seller. This is known as a referral fee and is a passive way to make money as a real estate agent.
Beside earning money from commissions, here are some other ways how to make money in real estate as an agent:
College housing is a great niche to make money in real estate as an agent. Not every college student chooses to live on campus, so they will need help finding off-campus housing. Additionally, they may want to rent or buy locally after living on campus for the first few years.
Housing around colleges will generally always be in demand. College students often use real estate agents to help them rent out a good place. When students come to a new town for college, real estate agents can use their expertise to secure a place for them while the students attend school.
The leasing fee for renting out college housing is relatively small compared to a residential sales commission. A standard leasing fee is 50-100% of the first month's rent. For example, if the rent on a house is $4,000/month, a standard leasing fee might range from $2,000-$4000. However, the service is simple and quick which shows that college housing is a great niche for real estate agents to make money.
Real estate agents can get into property management to make money because property owners will need someone to manage their properties, especially if they own more than a handful of properties. Property management can be a part-time focus for real estate agents to make money. Real estate agents and brokers can easily become property managers for their real estate investor clients.
Real estate agents work with the investors to buy properties for rental purposes. After that, the investors can hire the same real estate agents to become their property manager after the transaction is complete. Property managers usually charge about 6-10% of the gross rent collected, a fee which varies from market to market.
Real estate agents can make money from both sales commissions and consulting services to clients. As an agent, you can gain access to important information about different real estate properties in local areas and learn about things that are happening in a city before the public does.
Moreover, real estate agents can make money by offering consulting services to property developers because the developers might need an expert to figure out the value of the property and how much they can sell it for in the future. You can provide these developers with a 'BPO' or Broker Price Opinion for a fee.
Moreover, the real estate agents can offer property development consulting during the planning process, and the agents earn money from the consulting fees.
Short-term investment options are an effective way to make money in real estate because making improvements on a property can add tremendous value, which help investors gain healthy profits when selling it. You can invest in an old houses, underpriced houses, and distressed properties that needs some polish and renovation work.
The primary short term strategy is called “house flipping” or “fixing and flipping.” After purchasing a property, you renovate the house in a cost-effective way in order to resell it for a profit. You need a good general contractor to help calculate the cost of flipping the house and to manage the project. Visit our blog to learn how to flip a house for the first time!
Alternatively, you can choose a long term investment option to invest because you may get a larger return on investment in the long run. You can buy and hold rental properties for income, such as single-family homes and multi-family homes. Your rental income should be greater or equal to the expenses of holding the property. When that occurs, you have a wonderful thing called cash flow.
Your expenses of holding the property include mortgage, taxes, insurance, and maintenance costs. You can make money in real estate long term investing by keeping your rental income higher than the expenses of ownership.
Additionally, you can invest in Real Estate Investment Trusts (REITs) and real estate mutual fund as long-term investment options. You can earn dividend income from buying and holding REITs shares and the value of the commercial real estate company may increase over time. Moreover, real estate mutual funds gain more value over time through appreciation and may not provide any short-term income to investors.
"The best investment on earth is earth.” -Louis Glickman
You can become a hard money lender to make money in real estate if you have access to enough capital. Hard money lenders loan out money to real estate investors to invest in properties such as single-family homes, multi-family homes, and commercial property.
It's called hard money because they are hard asset-based loans and the interest rates can be hard to stomach for the borrower.
A hard money loan is a short-term loan with a term of around 12 months or less. Also, the interest rate is higher than other loans, which can range from 8% to 14% interest.
In addition to interest, the borrower usually pays the lender 'points' upfront. One point is equal to 1% of the loan amount and hard money lenders usually charge around 1-4 points.
So, as the hard money lender, you collect this interest and points as your profit for letting someone borrow money from you. The loan is secured by the real estate, so worst case, if the borrow doesn't pay you back, then you keep the property!
Imagine earning double digit returns on your money by simple lending it out to others to use for their projects - amazing!
The borrower might not qualify for a traditional loan from a bank due to their lack of credit history and income. If the borrower qualifies for a loan from the bank, they still have to wait a long time to secure the funds which can affect their investment plan.
Most hard money loans are preferred by investors because they can close quickly, so you can secure the loan within days or a few weeks. This is very convenient if you need fast money to invest in real estate properties.
Here's an excellent video from an attorney explaining how to complete your due diligence on a real estate deal as a hard money lender:
You can become a real estate investor if you do not have a license. You can buy a home, live in it for a few years, then turn it into a rental property after you move out.
When you buy a new home, you can choose to rent out your old home because this is much better than leaving it empty. After repeating this several times, you'll have multiple properties paying you rental income!
Acting as a buyer or seller when you are investing in properties does not require a real estate license. You can consider renovating and house flipping your personal residence, which can be done without a real estate license.
You can make money in real estate without a license by partnering with a trusted real estate agent that will help you find good properties to invest in. If you do not have a real estate license, an agent can provide access to the "MLS", which stands for Multiple Listing Service.
Furthermore, the MLS is a database that provides relevant information, such as properties for sale, expired listings, and pending sales. This will help you analyze the housing market and the prices in the area.
The information from MLS is valuable and useful to real estate investors because you can get ahead in the competition and make effective investment decisions. You should partner with a good real estate agent if you do not have money or time to get a real estate license because you can gain a lot from their expertise in the industry.
Real estate wholesaling consists of creating an equitable interest in a real estate property, then transferring that interest to another investor for a fee. This may take the form of a contract assignment, aka flipping contracts, double closing the deal or even whole-tailing.
Despite common belief, in most parts of the country real estate wholesaling is one of the best ways to make money in real estate without a license.
If you want to learn more about how to make money in real estate wholesaling, attend our FREE online workshop on how to find and profitably flip your first house in 45 days or less!
Real Estate Invest Trust (REIT) is a company that owns, finances, and operates income-producing real estate. REITs are similar to how stocks work because shareholders earn dividends from the real estate company income, which is derived from from rents and asset sales. The real estate company owns property such as shopping malls, apartment buildings, warehouses, and hotels.
Moreover, REITs mainly focus on longer-term investments rather than buying properties and quickly selling them for a profit. You can make money in real estate through REITs by earning dividends periodically.
If you do not have enough money to invest in an actual property, you can still own real estate through REITs. In addition, REITs require a low investment entry costs which can be as low as $500 or the price of one share.
You do not have to worry about managing the properties as a landlord because the liability and the risk are eliminated when you choose to buy REITs. You can make money in real estate through REITs by selling your shares for a profit when the company is going up in value. The success of the company will determine how much money you can earn from your REIT shares.
Here's a short clip discussing how to make money in real estate with real estate investment trusts (REITs):
If you have no money to invest in real estate properties, you can apply to receive loans from hard money lenders to fund your projects. You can secure the funds much quicker than from a bank, and there are less requirements to qualify for the loan when you borrow money from hard money lenders.
The interest rate on a hard money loan is higher than traditional mortgage loans. This is a trade-off for a quick, available route to obtain financing for your real estate investments.
The key to making money in real estate with no money is learning how to find good deals. You want to find deals that are SO good that they can afford the high cost of capital when borrowing money from hard money lenders.
Microloan is another way to get financing if you have no money to invest in real estate properties. This is sometimes a peer-to-peer loan, and microloan is small which is from $50,000 or less.
There are fewer qualifications to get a microloan compared to other loans from traditional financial institutions which can help you easily secure some capital to invest in real estate.
Websites such as LendingClub.com make it easy to invest or borrow through a peer-to-peer network for microloans.
If you have no money or little money to invest in real estate property, you can form an equity partnership with other investors. If the total investment on a property is out of your reach, then you should look to form a partnership with other investors.
You can go out and search for underpriced properties if you do not have the finances to invest. In addition, your partner can use their credit score or money to make the investment in the discounted properties that you find. Each individual should take on a specific role in the partnership because this will help everyone succeed with their investment.
Real Estate Skills Tip: If you find a great deal and can do all the work, your equity partner could put up 100% of the capital required. Then, you can split profits (e.g. 50/50, 70/30, 80/20) with your equity partner.
You can invest in real estate property with no money through home equity loan or line of credit. This type of loan allows you to take out a large amount of money and gives you some financial flexibility to invest.
Home equity is calculated by the current value of your home minus the amount of money you still owe on your mortgage. Home equity loan is safe for the bank because it is secured by your primary residence.
You can pay lower interest rates and borrow a significant amount of money with home equity loans. People often capitalize their equity on their own home so that they can have the finances to invest in additional properties. The financial institutions offer two types of these loans. There are home equity loans and home equity lines of credit.
The terms for home equity loan are fixed interest rates, fixed loan amount, and fixed repayment time. Home equity line of credit (HELOC) is similar to your credit card because the line of credit offers you a limit on how much money you can borrow, and is replenished when you pay it back.
You can access this whenever you need to get finances to invest in properties such as home renovation flips, residential investment, and commercial investment.
In contrast to home equity loans, the interest rates and the repayment period on a HELOC vary from time to time because they depend on how much money you borrow and the prime lending rate or index the HELOC rate is linked to.
An easy way to remember how to make money in real estate rentals is by using the acronym IDEAL. Read the image below to see why real estate rentals can be an IDEAL investment.
Residential rental property is a proven way to invest and make money in real estate because you can earn monthly rental income. If you own houses or apartment buildings, you can rent out the properties in order to collect rental fees every month.
The value of your property will appreciate over time, which makes it a great long term investment plan. However, you may have to deal with problems like fixing broken toilets or conducting regular maintenance. You can invest in rental properties such as single-family homes, multi-family homes, apartment buildings, and condos.
When you make renovations and upgrades on the rental properties over time, you can earn higher returns on your residential rental investments by increasing rent. Furthermore, your rental properties will go up in value on the real estate market which can become a great long term investment plan.
Commercial real estate is another way to invest and make money by renting your properties to other people to run their businesses. You can choose to flip the commercial real estate properties, or you can get more benefits by adding value to your commercial properties and holding for the long term.
If you can add value to your properties through renovations and upgrades, the value of your commercial properties will go up. Additionally, you can earn more rental income from making upgrades on your properties. People will need to rent a space to run their business office or a place to operate their business in areas like strip malls and shopping centers.
You can invest in vacation properties to make money if you do not have a real estate license because the high demand for short term rentals can help you gain good and steady income. You should invest in attractive locations such as downtown areas, college areas, and tourist destinations.
You can earn significant income from vacation rentals if you buy right and are able to make property investments in those tourist areas. A great number of people visit these tourist cities which increases the demand for short term rentals.
You can use Airbnb or VRBO to rent out your own home to tourists in order to make money on vacation rentals. Airbnb is a great site that connects people who want to rent out their current home to travelers who need lodging. Investing in vacation rentals can give you a high return on investment if you are able to recognize the opportunity.
A short sale is a real estate sale when the net proceeds of a property sale fall short of all debts and lien amounts secured against the property. Moreover, the sale of a property is less than what the current owner owes.
You can make money in real estate through short sales because you can acquire property at serious discounts to market value. When investing in short sale property, you may have to pay cash up front. Additionally, they may take longer than traditional sales, because you have to negotiate with the bank, in addition to the seller.
Short sales are beneficial to banks and lenders because it allows them to avoid having to regain possession of the properties through foreclosures. Foreclosures are considered time-consuming and expensive to encounter.
The property sellers also want to avoid important consequences like a negative credit hit from foreclosure and bankruptcy. Visit our blog to understand more about the process of short sale in real estate.
Private money lending is when an individual or entity issues mortgage loans to investors, secured by a trust deed and note to fund real estate property investments. You can make money in real estate through private money lending if you are a wealthy individual or have access to capital.
This type of loan is mostly based on the relationship between the borrower and the lender because it can be a friend or a family member that you are loaning money to.
As a private money lender, you can make money by explicitly setting your own terms (interest, points, length of loan, etc) with the borrowers. This is quite different from traditional institutions and hard money lending.
Private money lending offers more flexibility than hard money lending because the terms are negotiable between two parties. You can choose to offer generous terms or ungenerous terms to the borrowers based on the risk of their investment project or credit history.
Private money lending uses the market interest rates or higher interest rates to produce profit for the lender. Accumulating interest, points, and fees are how to make money in real estate through private money lending.
Despite popular belief, you do not need a significant amount of capital to enter the real estate market. There are so many ways you can learn how to make money in real estate!
Even if you don't have your own money to invest in properties, you can still make money in this industry by using other people's money - such as hard money loans, creative financing, and forming a partnership with other investors.
You can become a real estate agent and earn a very large income from sales commissions other real estate services you provide to the marketplace.
Even if you don't have a real estate license, you can make money by partnering up with a real estate agent or broker who can help you execute on your business plan.
This shows that you do not need to know everything about real estate or have a license before you start making money. You do not need a lot of capital to enter the real estate industry. You just need a sound education and a good plan.
More importantly, you need to understand what strategy you are getting into in order to earn a good return on your investment. You have to analyze the cost and the underlying risks in order to earn positive cash flow and end up making a profit.
We hope you gained inspiration from How To Make Money In Real Estate: The Ultimate Guide! What's your favorite strategy we covered? Leave us your questions and thoughts in the comments below.
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