The real estate market is white hot. Whether buying a personal home or rental property, buyers take advantage of real estate investments to secure their financial futures.
The housing market continues to grow as a reliable platform for capital gains. Many agree that purchasing an investment property is the surest way to make money this year. Here’s everything you need to know about this lucrative investment opportunity.
Real Estate: The Biggest Money Maker
According to a recent poll by CNBC and Momentive, 38% of Americans say investing in real estate is the best way to accrue wealth over time. Yet, only 12% have purchased an investment property in the last year.
What’s preventing investors from pursuing real estate market investments? For one thing, down payments are averaging $62,611 in the 50 largest cities nationwide — up from $46,283 in 2021. Three of California’s metropolitan regions — Los Angeles, San Francisco, and San Diego, where many people go for work and travel — are out of most investors’ budgets.
Nevertheless, 49% of adults from 55–66 years old have no retirement savings. There are also stark differences in retirement savings by gender — 50% of women have zero savings compared to 47% of men. Real estate could help these individuals make up their financial futures.
6 Ways to Make Money in Real Estate
Opportunities for wealth creation are abundant in real estate. Investors have several options for buying, renting and renovating properties for significant gains. Here are six practical ways to make money on a home this year.
Let Your Home Appreciate
The beauty of real estate is that most homes appreciate over time — depending on where you live and whether you renovate — meaning their market values continually increase. As a result, you boost your equity — the home value minus the owed mortgage.
Of course, you don’t necessarily have to do substantial renovations for your home value to rise. Sometimes, your city becomes more desirable to live in, increasing the property values in the area. You’d be surprised how many buyers purchase properties at a lower sales price for a good deal or fixer-upper opportunity.
For instance, 10 metropolitan areas in the South had the most significant year-over-year (YoY) gains of 14.5% or more in the fourth quarter of 2022, including 20.3% in Farmington, New Mexico. Other appreciation gains include 19.5% in the North Port-Sarasota-Bradenton area of Florida and 17% in Greensboro, North Carolina.
House flippers can make a mint on a fixer-upper if they know how to do it correctly. To flip a house, investors will want to buy an undervalued listing — such as a sell-as-is home or foreclosure — and fix the property for a higher resale value.
However, you must have extensive knowledge of current market conditions and how to add modern finishes at an affordable price for the best return on investment. Although everyone must start somewhere, you may need to bite the costs on a few flips until you get the hang of it.
Rent Out a Home
Managing a rental property has become an increasingly popular investment strategy in real estate. You might decide to rent out a property long-term — for instance, six-month to year-long leases — in which case you can earn a consistent cash flow from monthly rental payments that cover mortgage interests, property taxes, homeowners insurance, and repair costs.
Short-term vacation rentals are another option for real estate investments. Instead of a long-term tenant, you can rent your property to travelers for a few days to a few weeks.
About 14.83% of Americans own two homes, one of which many use as a vacation rental. You can earn significant capital gains if you choose the perfect location — like a beach house or lake cabin.
Buy Turnkey Properties
There are various reasons why property investors might look to sell their houses quickly. It’s possible that they need the money for an emergency, want to make another big purchase, or have found that they no longer have the time to manage the property.
Selling a house with tenants is called a turnkey home. You buy more than just the house — you purchase a property with built-in tenants. This can be a good thing, though — with tenants locked in, you can earn cash flow from the start without looking for renters yourself.
Refinance Your Mortgage
Mortgage rates are high in 2023 — 30-year loans have an annual percentage rate (APR) of about 6.5% to 7%, twice as much as it was in 2022. As such, investors aren’t keen on refinancing their current mortgage.
However, refinancing has its advantages. It lowers your monthly payments and interest rates, allowing you to save money or use the additional funds to pay off other debts. You can also repay your loans sooner or lock yourself into a fixed interest rate.
Some investors choose to do a cash-out refinance on their home equity to make home repairs or use the money to pay off medical debts, legal fees, and college tuition.
Invest in Real Estate
Real estate investments come in many forms besides physical property capital, such as exchange-traded funds, mutual funds, Real Estate Investment Trusts (REITs) investing in commercial spaces, real estate investment groups (REIGs), and wholesale real estate.
Opportunities like these allow investors to trade, buy and sell shares on the market and work with other real estate investors to pool resources for a return.
Wholesaling, in particular, requires savvy investment skills to understand markets and flip properties around within a month. These investors see a home’s potential marked below market value and can sell the property far more after renovations.
Build Wealth With Real Estate
Real estate is a wise, lucrative investment decision, whether you are new to asset creation or looking to diversify your growing portfolio. Even during economic downturns, you can continually gain capital from your property investment.