Real estate has allowed a lot of investors to become wealthy over time. Though many people are still skeptical about real estate as a result of the 2008 market crash, real estate has been and always will be a great investment for savvy investors. Many people don’t understand that they don’t need a large amount of capital to make their first real estate investments. It does take money to make more money, but the amounts aren’t as high as a lot of people may believe. There are a variety of proven ways for people to make money in real estate.
Investing Without Money
Many people prevent themselves from investing in real estate due to poor credit or no credit at all. However, credit isn’t necessarily needed to invest in real estate. There are many ways to work around an absence of credit. From hard money loans, to offering seller financing on a home, to finding an investment partner, investors have many options when it comes to finding funds for their investments.
There are two ways in which real estate investors earn money. The first of the two methods is through active income, when money is earned through an active investment strategy. An active investment strategy would be a fix and flip strategy, where a property is purchased for a low amount, repaired, and sold for an amount that is competitive with other properties in the area.
Passive income is generated from recurring payments to the investor. Purchasing a home and renting it out to tenants is an example of a passive income strategy. Note that improving the passive income (ie increasing the rent) is an active income strategy in and of itself in that often investment properties are valued based on a multiple of their passive income.
Becoming the Bank
A commonly overlooked strategy is providing loans to other investors. Hard-money lenders are investors who provide short-term loans for other investors to purchase properties that would typically have a hard time obtaining credit through a traditional bank. The loans that hard-money lenders provide carry higher rates of interest due to the risks involved with the loans and the shorter duration of the loans. Hard-money lending is typically not for new investors because it involves an in-depth understanding of the investments and probability for principal repayment. As an investor grows their network they may consider providing loans to other investors.