"Making money is easy. It is. The difficult thing in life is not making it, it's keeping it."
Increasing property value
When investing in real estate the most common way to make money is by appreciations. This means that the property sells for a higher value than you initially bought the property. For instance, if someone buys undeveloped land and build a house on it, the value of the land increases. There is also a possibility that the value of land increases because the land contains valuable minerals. For instance, someone finds out his land contains oil.
One of the biggest influences on appreciation with residential properties is based on location. When the neighborhood is growing and becoming more popular, the value of the property appreciates. Controversially, if the neighborhood of the property becomes less popular and poorer, the value of the property decreases.
There is also a possibility to invest in your property to make your property more valuable. Think about renovating, this is a way to develop your property by for instance adding a garage or a new kitchen.
For commercial properties the same factors are influencing the appreciation: location, development and improvements.
Inflation has always been a factor in property values. If you would have bought a house in 1960s for hundred thousand dollars and you did not develop it, it is still more valuable now than back then. Due to the high inflation since then the house with be worth five times more. However, inflation not only happens on properties, it also happens to all the other products. Therefore it is not a very profitable way to invest.
The second way to gain rewards out of real estate is by generating income, for instance, rent. It is possible to get income from a raw land. As a land owner you are able to create income from by adding certain structures, like pipelines or roads. Also, using raw land for agricultural purposes is also an option.
The most common way in creating income with residential properties is by getting rent. A fixed amount per month is paid by the tenant. This amount is based on the costs of the property, management fees, the inflation, demand and the margin for profit. Want to know more about investing in rental properties?
The ways for income from commercial properties are the same as for residential properties. However, in the commercial world there is the possibility to get options. People are willing to pay more to invest in certain requirements like the right of first refusal on the office next door.
Residential real estate
- Buy a residential property and hold it. This way you have the possibility to rent it out or to live in it while renting the other rooms or apartments from the building.
- Buy a property and instantly sell it or renovate it and sell it.
- Vacation rentals. It is possible to buy a property for the use of tourism. Also, nowadays it is also very easy to sublet your own property or vacation rental via Airbnb.
As shown above, there are many roads that lead to Rome. There is just not one answer on the question: 'How to make money from real estate?' However, it is important to understand your investment, risk, and personal capacities. Real estate is not for everyone and you have to see if its worth it for you.