When investing in real estate there are many different strategies that people use to make money. Some people focus on one strategy and others mix it up. There’s no right or wrong way, its all dependent on your situation and your goals. Listed below are 4 way in which investing in real estate can bring wealth into your portfolio.

1. RENTAL: investing in properties that rent for a higher price than all costs (not just mortgage payment) associated with owning the property (costs such as utilities, taxes, insurance and maintenance).

[Read more about how to make money with Real Estate Rentals here)

• Pro’s

  • Extra cash available to you each month with less effort than working a ‘9-5’.

  • Ability to own an appreciating asset while someone else pays the cost of ownership for you.

  • Rent typically increases over time and your costs of ownership should stay relatively consistent resulting in higher cash flow over time.

• Con’s

  • Must be a landlord which comes with some effort and can be a headache from time to time.

  • If you run into unforeseen maintenance or vacancy costs this can quickly turn your profit into a loss.

  • There’s a risk of tenant damage, lack of payment, and having to deal with eviction which can eat into your profit quickly.

2. REHABS: buying run down / outdated properties, fixing them up and putting them back on the market for a profit.

• Pro’s

  • Typically there is a higher return on your money than rentals and you will receive larger sums of money quickly. It’s a favorable way for building up capital quickly which can be a great way to get access to higher return on your investments.

• Con’s

  • Requires more money investment up front to fund repairs; however, this doesn’t have to be cash, you can also finance the rehab.

  • Requires a decent amount of your time. Even if all jobs are contracted out — which at the beginning this is unlikely if you want to make higher profit margins— it still takes time to coordinate with the contractor.

  • Higher unpredictability on the profit. Typically you can estimate pretty well how much a flip will cost you especially if you’ve done it a few times; however, there is a chance you may run into major issues and all your profits get drained immediately. There are however ways to reduce this risk:

    • Inspections, inspections, inspections. Get inspections! They don’t always find all issues; however, the chance of missing something with an inspector is much lower than without an inspector.

    • Buy the property with a decent amount of margin for repairs to leave room for unexpected things and reduce this risk. A common rule for flipping houses is the 70% rule. You can read more about it here.

Read more about making money with real estate through Live-in flips (one of our favorite methods)

3. PRICE APPRECIATION: as the value of your house increases over time this can open up a lot of money opportunities for you such as: refinancing for cash, refinancing for lower mortgage payment, selling and pocketing a profit or even taking out an equity line of credit. You can benefit from price appreciation along with rental income if the location your property is in benefits from both of those strategies.

• Pro’s

  • The effort can be low. Let’s say you’re living in a property that would cost you the same or similar amount to rent in the area. Instead you own an asset that you can earn money on in the future without any effort.

  • If you decide to rent this property you would encounter similar pro’s mentioned above for rentals.

• Con’s

  • Price appreciation by a specific percentage is a speculation and not a fact. Although there is a lot of data to help support your prediction, it may not always appreciate as you thought it would.

  • You need to be aware of the cost of ownership while you are owning the asset. Either you live in it and make sure the cost is something you can afford, or you rent it out. Of course renting has its own con’s listed above.

4. Real Estate Investment Trust’s (REIT’s): companies that own or finance income-producing real estate. These companies are typically traded on the stock exchange.

• Pro’s

  • Not required to go out and purchase a property. This means you can enter with smaller capital and without qualifying for a mortgage.

  • REIT price change has a low correlation with how other stocks move so this could be a great way to add some diversity to your portfolio. (If other stocks are tanking it’s not necessarily the case that you’re REIT will tank too).

• Con’s

  • Fluctuates with interest rates. Higher interest rates are bad for REIT’s. Higher interest rate means lower price. (Logic: higher interest rates typically slows buyer demand which in turn causes higher supply. High supply, low demand = lower price).

  • REIT dividends typically get taxed as pass-through income. They can still utilize the 20% pass through income deduction but are still typically taxed higher than qualified dividends.