The secret playbook for making money in real estate

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One of the largest sectors in both the U.S. and world economies, real estate offers countless ways to make money.

You can invest in it, of course, whether directly or indirectly.

study over 145 years in more than a dozen countries found that real estate offered the highest returns of any asset class with half the risk of stocks. Or you can choose a career that relates to real estate, such as working for a real estate brokerage, title company property management firm.

As you explore how to make money in real estate, consider the following options as a starting point, not an exhaustive list.

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How to Make Money in Real Estate: Direct Investment

When most people think of real estate investing, they think of buying and owning property directly. If you like the idea of owning property yourself, consider the following ways to make money with real estate.

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1. Real Estate Wholesaling

When you wholesale real estate, you don’t actually end up buying the property — you flip the contract to buy it.

This makes it an odd place to start a list of how to make money in real estate directly. But real estate wholesalers should be prepared to buy any property they put under contract, if they fail to find any buyers.

Real estate wholesaling works like this: You find a great deal on a property, often a fixer upper. You put it under contract, then you turn around and find another buyer willing to pay a little more than your contract price. You assign the contract to them, earning the difference between the two prices as a margin or fee.

For example, you find a property that the owner is willing to sell for $70,000, even though it’s worth $100,000. You put it under contract for $70,000, then offer the deal to another real estate investor for $75,000. They buy it for $75,000, a steal given its market value of $100,000, and you earn a $5,000 margin without ever having to take title to the property.

Sound too good to be true? It’s a lot of work finding deals that good, and it’s also work to build a network of buyers to take these deals off your hands. And if you fail to find a buyer, you have a choice: Cancel the sales contract and lose any earnest money deposit you put down or buy the property yourself.

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2. Flip Houses

Everyone understands the basics of flipping houses. You buy a fixer-upper, renovate it to “force equity” and then sell the finished property to a homebuyer.

Again, it requires the skill of finding great deals on properties. It also requires a slew of other skills, such as negotiating with contractors, managing contractors, understanding which home improvements add value and which don’t, working with investment property lenders, and a strong understanding of the local real estate market.

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3. Buy and Hold: Long-Term Rentals

You also understand how long-term rentals work, and have probably lived in a few yourself.

It’s the classic landlord model: you buy a property and then sign a long-term lease agreement with tenants. You have to maintain the property, collect rent and enforce the lease agreement, which sometimes means serving eviction notices and going through the full eviction process when tenants default or otherwise break your lease.

Investors typically go one of two routes when finding properties for the buy-and-hold strategy. Some buy turnkey rental properties, ready for tenants to move in, or with tenants already living there. Other investors buy fixer-uppers and use the BRRRR strategy, where they renovate the property then refinance it with a long-term rental property mortgage.

Neither strategy is better or worse, it just depends on whether you’d rather score a better deal in exchange for taking on the headaches of renovation.

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4. Buy and Hold: Short-Term Rentals

With the advent of Airbnb, everyone now understands how short-term vacation rentals work too. You rent the property out to short-term guests and (mostly) don’t have to worry about evicting bad tenants or chasing deadbeats down for the monthly rent.

But vacation rentals come with other risks and headaches. You have to market the property effectively and maintain a high occupancy rate, or risk losing money each month. You have to furnish and decorate the unit tastefully. And, of course, the constant turnovers add costs and labor as you clean the unit between every guest, change the linens, and so on.

If you’re interested in short-term rentals as a way to make money in real estate, start with these tips on how to be an Airbnb host.

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5. Invest in Mobile Homes

Rather than single-family homes or multifamily properties, you could always buy mobile homes.

They cost a lot less, for starters. And because they’re not “attractive” investments, they often offer higher returns on investment and cap rates.

Before you write them off, listen to our interview with “The Mobile Home Gurl” Rachel Hernandez. You might just be surprised.

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6. Invest in Mobile Home Parks

Alternatively, you could invest in mobile home parks, and make money from renting out pads to mobile homeowners.

It costs far more to buy a mobile home park than an individual mobile home, of course. But the business model comes with plenty of perks — to begin with, you don’t have to maintain any houses!

Check out Mr. 1500’s experience owning a mobile home park for a fun and detailed case study.

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7. Invest in Land

Land comes with its own advantages, beyond not having to maintain any physical homes.

Like mobile homes and parks, it’s not sexy, so there’s less competition. That leaves higher potential returns for investors, often over 100% on any given property.

You also don’t have to hassle with wayward tenants or hear the line “Check’s in the mail!” ever again.

If you’re interested, check out this land investing case study, then the REtipster land investing course. Seth Williams is one of the country’s top land investing teachers and investors and teaches in an easygoing, friendly style.

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8. Commercial Real Estate

You can, of course, buy commercial properties, ranging from humble corner stores to towering skyscrapers.

Types of commercial buildings include:

  • Office space
  • Retail space
  • Restaurant and bar space
  • Apartment buildings (any apartment building with five or more units is classified as commercial rather than residential property)
  • Industrial space
  • Self-storage units

Commercial real estate properties don’t come with the same preferential laws for tenants that residential real estate does (excepting apartment complexes). You don’t have to worry about anti-landlord laws or absurdly strict rules — if your commercial tenant defaults or breaks your lease agreement, you can reclaim your property much faster.

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9. Real Estate Syndications

In a real estate syndication, you typically become a silent partner on a large commercial property deal.

It works like this. An expert real estate investor — the syndicator — finds a good deal on a commercial property, such as an apartment building. They don’t have enough money to buy the property themselves, so they raise money from partners. The partners usually authorize the syndicator to oversee the deal and manage the property, so the syndicator makes most decisions even though they’re a minority shareholder.

In exchange for their labor, they get some sort of bonus structured into the deal.

Real estate syndications offer a (relatively) affordable way to invest in large commercial real estate deals. Unfortunately, because of how strictly the SEC regulates them, only accredited investors can typically participate in them.

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10. Fractional Property Ownership

You can of course partner with a real estate investor, in a joint venture. For instance, you find an experienced investor and offer to pitch in 20% of the purchase price for 20% ownership.

If you like the idea of fractional ownership of rentals, check out Arrived as a more flexible alternative. You can buy fractional shares in a property for as little as $100, and still get the full rights and privileges of ownership, including landlord tax deductions.

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How to Make Money in Real Estate: Invest Indirectly

You don’t have to buy property directly to invest in real estate.

In addition to buying properties, I also invest in real estate indirectly through most of the following strategies.

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11. Publicly-Traded REITs

real estate investment trust (REIT) is a company that either owns a real estate portfolio or lends money secured against real estate.

They trade on public stock exchanges, so you can buy and sell them instantly. That makes them liquid investments, unlike most types of real estate investments.

It also makes them volatile, and share prices correlate far too closely with stock markets for any kind of meaningful diversification.

The greatest strength and weakness of public REITs, however, stems from how the SEC regulates them. The SEC requires them to pay out at least 90% of all profits each year to shareholders in the form of dividends. That creates high dividend yields, but it also leaves these funds with little prospect for growth, as it makes it hard for REITs to reinvest profits in new properties.

This is why I usually opt for private REITs instead.

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12. Private REITs

Some real estate crowdfunding companies offer their own pooled funds, which either own properties or debt secured against properties. But unlike publicly traded REITs, you buy shares in these private REITs directly from the real estate crowdfunding platform.

That offers three huge advantages. First, share prices aren’t volatile, and second, they don’t correlate closely with stock markets. So, they offer true diversification from your stock investments.

Third, the SEC regulates them differently and doesn’t require them to pay out 90% of their profits as dividends. That leaves them the flexibility to reinvest profits and grow their portfolio, and therefore grow their share prices.

My two personal favorite private REITs are Fundrise and Streitwise. Fundrise focuses more on apartment buildings and residential properties, while Streitwise buys and manages commercial office buildings. Both allow non-accredited investors, and you can start investing in Fundrise with as little as $10. Streitwise requires a higher minimum investment of $5,000 but has delivered consistently high dividends in the 8-10% range since they launched.

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13. Crowdfunded Real Estate Loans

Private REITs aren’t the only real estate crowdfunding investment you can make.

Another model involves funding loans secured by investment properties. You put money toward a specific loan secured against a property being renovated by a flipper. When the flipper sells the property — or refinances it if they’re following the BRRRR strategy — they pay off the loan and you get your money back with interest. If the flipper defaults on the loan, the lender forecloses, and you get your money back that way.

My favorite example is Groundfloor, which allows non-accredited investors. You can invest with as little as $10, putting $10 toward each loan that you like the look of. That also makes it easy to diversify by spreading your money among many different loans.

Unlike most real estate investments, Groundfloor loans are short-term. You typically get your money back within 6-12 months, making Groundfloor loans a more flexible source of passive income than most real estate options.

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14. Private Notes

No one says you have to go through a third-party loan platform to lend money to other real estate investors.

I’ve lent private notes (loans) to real estate investors I know and trust. They pay me interest quarterly, at 10% annual interest, and the loan term is open-ended.

But you can structure your loan however you want. You negotiate the interest rate, the loan term, the repayment terms. If you want, you can record a lien against the property for collateral so you can foreclose if they default.

Word to the wise, however: Only lend a private note to experienced real estate investors you personally know and trust.

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15. ETFs & Mutual Funds

Want to invest in real estate through stocks?

Some exchange-traded funds (ETFs) and mutual funds specialize in real estate or in industries with a heavy real estate component. For example, you can invest in homebuilder ETFs. For that matter, hotel and hospitality companies own plenty of real estate.

While ETFs offer great liquidity, and you can easily invest in them through your tax-sheltered retirement accounts, they tend to move in strong correlation with the stock market at large. That limits their diversification benefit.

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16. Private Equity Funds & Opportunity Funds

Another investment to make money on real estate, you can buy into private equity funds or opportunity funds.

Private equity funds invest in, you guessed it, private companies that don’t trade on stock exchanges. These companies can include real estate businesses.

Opportunity funds invest in real estate in Qualified Opportunity Zones, typically low-income areas. Designated by the IRS, real estate in these opportunity zones offer special tax advantages. For high earners, investing in qualified opportunity funds can provide valuable tax breaks.

Unfortunately, many private equity funds and opportunity funds only allow accredited investors to participate.

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How to Make Money with Real Estate as a Career

Investing isn’t the only way to make money on real estate. You can also create a lucrative career in the real estate industry.

While the career options are endless, here are a few of the more common ways to make money from real estate as a career:

  • Real estate agent (commercial or residential)
  • Real estate broker
  • Real estate marketing specialist
  • Home stager
  • Real estate photographer
  • Property manager (commercial or residential)
  • Leasing agent (commercial or residential)
  • Real estate appraiser
  • Home inspector
  • Real estate attorney
  • Title officer
  • Settlement agent
  • Mortgage loan officer or account executive
  • Mortgage processor or underwriter
  • Hard money lender
  • Real estate developer
  • Jobs with REITs

All of these career paths complement real estate investing as a side gig as well!

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Final Thoughts

You can make money from real estate in countless ways. But start with the ideas above as you explore how to make money in real estate investing.

If you don’t know where to begin, try investing $10 in Fundrise or Groundfloor to start building a real estate investment portfolio. Everyone has $10, and just the act of creating an account and investing a few dollars will help you start down the path of making money with real estate.

You can scale up from there as you see fit, but the important part is taking the first step.

This article originally appeared on Sparkrental.com and was syndicated by MediaFeed.org.

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