In comparison to other asset types, real estate demonstrates obvious advantages. Houses and apartments are physical assets, not some digits and numbers. Residential and commercial property is always in high demand among both tenants and buyers. Such investments protect your savings from inflation and tend to get more expensive over time.
But how do you actually make money on real estate? Basically, you have only two options – either earn on renting out or reselling.
Buy-to-sell
In this case, an investor purchases real estate in order to sell later for a higher price. Of course, this option will only work if the given object has good chances to get more expensive.
Investing in land
It’s simple. You buy a land spot with nothing on it, then build something valuable and sell. Profit!
What people don’t know is this method is associated with huge risks and requires skills and knowledge. In fact, it’s more of development than investment, and a beginner investor should stay away from such a complicated scheme.
Investing in off-plan
But when you invest in someone else’s development, it’s investment. People often purchase property under construction since it’s a guaranteed way to sell it for a higher price which can rise up to 35% when the building is ready.
What is not guaranteed is whether the construction will actually be finished or finished on time. Sometimes developers go bankrupt or even turn out to be fraudsters. Besides, once you purchase an off-plan property, your money gets ‘frozen’ in the construction since the property cannot bring any additional money.
Renovation
Another way to make money on real estate is to buy ‘bad’ property and turn it into a ‘good’ one. Some investors purchase old and shabby houses, then renovate them thus bringing their prices up and sell. In this case, you don’t depend on a developer and use your own resources.
The problem is you can make a mistake when evaluating the purchase and how much a renovation will cost.
Buy-to-let
This strategy makes renting out your main source of money. It doesn’t mean you can’t eventually sell your property, but you prioritize rental income.
Residential property
Renting out apartments in dense cities is probably one of the most common ways to make money on real estate. This strategy is simple and transparent. People always need dwelling so even during crises the demand for apartments and houses doesn’t change that much.
Still, don’t expect this type of property to become your source of passive income. From time to time, you will have to look for new tenants and take care of different issues.
Commercial property
Investing in commercial property works in a similar way, but is targeted on a different tenant category. Most of them are companies and entrepreneurs that want to rent offices or retail space. Hotel property is a somewhat stand alone class since it’s targeted at tourists and offers additional services. Still, hotel rooms and serviced apartments are often considered as commercial real estate.
As a rule, you can make more money on real estate in commercial segment, but it’s generally harder and often requires hiring managers. On the other hand, if you hire a managing firm and handle your hotel room to an operator company, you get a source of passive income. It’s especially useful when you invest in property abroad.
If you want to make money on real estate, you don’t have to stick to a single property type. In fact, diversifying your portfolio is the key to reducing risks.
