How Easy is it to Make Money from Real Estate Investing?

When it comes to generating passive income from investing, trends come and go – take what is going on with Bitcoin and other cryptocurrencies at the moment.  However, there is one truism in that everyone needs a place to live.

This opens the opportunity to make money from real estate investment.  Especially as homeownership rates are at their lowest level in 50-years.  For starters, it means that more people are renting and given that mortgage rates remain near historic lows, there are plenty of opportunities for passive income generation.

But how easy is it to make money from real estate investing?  Well, this article will outline some of the options and give you an idea of how much ‘work’ each option would require.

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Flipping

While this is one of the most popular trends in real estate investments, the reality is that flipping requires a lot of time, energy, and isn’t exactly without risk.  In fact, flipping homes not only risks the money you have tied up in the property but also the time it takes to complete repairs, and then to resell the home.

As such, a flipping project that takes more than a month or two could end up being an extremely risky proposition for a first-time investor.  Granted location plays a part in flipping – like it does in everything related to real estate investment.  But you also need to know what is going on in your market to see if a property is worth the risk.

For example, if there is a shortage of luxury condos for sale in your market, then this could be a good niche to focus your efforts.  Conversely a glut of starter homes in a neighborhood with issues such as crime or falling real estate prices are probably not smart locations for investment.

Another factor impacting the success of flippers today is the fact that home price in most locations have recovered from their lows in 2009 and 2010.  This means that it is becoming harder to generate big profits from flipping homes today.

If you do decide that flipping is the right way to go, then what you want to look for are the ‘ugly ducklings’ in neighborhoods with strong tailwinds in terms of rising sales prices.  Also, keep in mind that you will want to get in to and out of a property within 45-days or less and this means you will need to be working in close coordination with a real estate agent to make sure your property will sell quickly.

 

Rooms for Let

Another way to make money from real estate investment is to become a landlord. Given the low levels of homeownership, this is a much lower risk approach compared to flipping as the properties you take on should be generating income from day one, or as close to that as possible.

It is a good time for landlords as average rents across the country are currently growing at almost twice the pace of inflation.  While these returns don’t exactly compare to what is going on in the stock market now, you don’t have the same downside risk that other forms of investment carry.

Besides renting out multi-family homes, three of the best segments in the rental market include vacation properties (though these can be pricey), short-term rentals, and student rentals.  Looking at vacation properties, this would be longer-term rental in areas where people tend to congregate for the summer or near ski resorts.

Much of the growth in this area is due to the combination of relatively cheap gas and the horror that flying has become.  As such, more people are choosing to drive to their vacation destination rather than flying.

While these rentals can be pricey, then tend to generate solid revenues and often the money you make during the ‘season’ can cover you for most of the year.  This means that you can not only make money from your vacation home but you can enjoy the property during the offseason.

 

The next trend is short-term rentals – think Airbnb and other sites.  These sites allow property owners to maximize their investments in two ways.  First, it is an easy way to market their properties during periods of underutilization.  This capacity utilization helps to increase passive income.  Second, these short-term rentals, even with the broker fees, can generate more income on a per diem basis than long-term rentals.

The last opportunity for landlords is student housing and this can be a tremendous way to get the most out of your real estate investments.  Not only is the revenue per unit higher than other investment properties.  But most student rentals are secured by the parents and if you have the right location, it can create a long tail revenue opportunity as students refer their friends to assume the lease once they move out.