Making Money in Real Estate

While the real estate market can be profitable, it can also be complex. How can you make money in real estate? Let’s talk a little bit about how the real estate market works and what it takes to succeed and profit from it.

Real Estate Market Basics

In some ways, the real estate market works just like other commodities markets. The laws of supply and demand determine the value of a property relative to currency; the more in-demand a property is, the more cash it’s worth.

The good news for real estate investors is that, generally speaking, the real estate market tends to increase in value. There’s only so much room on this planet of ours and even less room near employment and cultural hotspots. With more and more of us looking for places to live, work, and play–and with standards of living increasing–there is a healthy market for space, new homes, and other real estate essentials. The pricey market can be rough for young people looking to buy homes, but it’s undeniably good news for landlords and real estate investors.

Making a Profit from Property

Buying a property and selling it later is the most obvious way to make money in the real estate market–it’s the same way that folks make money with stocks and other commodities and investment vehicles. But real estate also offers ways to make money off of property while maintaining possession of it. Properties that generate cash for their owners in this way are called, appropriately enough, “income properties.”

The most typical type of income property is a rental property. Most of us know the basics of how these work, of course: a landlord owns a property that they do not occupy (or do not occupy a portion of). They rent that property to someone else for residential, commercial, or other purposes. Per the lease agreement, the tenant pays the landlord regularly in exchange for their right to occupy the space. Voila: an income property!

Of course, it’s not quite that simple–there are plenty of expenses and risks associated with running an income property like this.

Minimizing Risk and Expenses as a Landlord

Landlords have to handle certain expenses related to their ownership of an income property. They’ll have to handle maintenance, repairs, property taxes, and other expenses. And they’ll be exposed to risks, too: bad and destructive tenants, serious problems with the property or its vital systems, and so on.

Keeping up with a property’s needs can be tough, and failing to do so can be costly. Deferred maintenance and neglect–both intentional and unintentional–can mean huge repair and restoration costs later on. Landlords should always stay on top of their properties’ needs.

Landlords have tools to help them manage these expenses and risks, however. Property management firms and consultants can help streamline and manage repair and maintenance work. Having strong working relationships with low-cost contractors can help the long-run profitability of your rental. Whether you need a quote on window coverings measuring and installations or an appraisal on the property value, using local resources you trust can reduce the overall stress involved. Realtors and software solutions can make it easy to post an online rental application and perform background checks on potential clients. And landlords should always carry landlord insurance to cover the gaps.

There are always risks to investing in the real estate market, of course. Not every individual or family should own an income property–whether or not owning an income property is a good financial move depends on your personal financial situation, your priorities, and how much time you can dedicate to managing it. But, for those who do decide to try their hand at owning and managing an income property, the good news is that a healthy market and proper management can help a landlord make a tidy profit.