If you are looking into investing in Real Estate, which is something I do and enthusiastically promote, you should be aware of the four different ways that you can make money:
- Passive income or your monthly income. You want to have money coming into your account every single month. When you’re taking a look at investment property opportunities, be sure to calculate how much rent you can expect to receive and ensure it can cover all the expenses and then some. Your expense calculation should cover your mortgage, taxes, insurance, maintenance, property management and also take into consideration possible property vacancy that can happen from time to time. The rent needs to cover the items listed above and you must have enough left over monthly that it makes the investment worthwhile. The amount leftover after all costs are accounted for is your monthly or passive income.
- Market appreciation. This is when the market goes up and the value of your real estate or property goes up. I do want to be totally clear in that I do not have a crystal ball. Markets do not always go up which I am sure you are well aware of. This is why it is vital when you are looking to invest in property that you ensure that you have money coming in every month to be sure to have cash flow. Although you cannot be 100% sure of market appreciation, it certainly helps to do research and invest in an area that has projected growth and appreciation.
- Forced appreciation. Making improvements to your property by investing some money into different areas will increase the value of the property. Concentrate on cosmetic improvement rather than structural ones to realize the value of the money you’re putting into the property. These improvements will make the property more attractive and definitely raise the resale value.
- Equity accumulation. By paying your mortgage every month or having your tenants pay the rent, which covers the mortgage payment, you will have equity start to build up. If you sell the property down the road, you will then have built up a sound sum of equity.
Investing in Real Estate is a really great avenue to get some passive income and build equity. It’s one way that you can start to make a little bit more money without having to take on another full-time or part-time job. You only have 24 hours in a day and you’re probably already busting your butt working a ton of hours. I know, as I’ve been in that situation and am no longer, thanks to my real estate investments.
If you’re just thinking about investing in real estate and if you haven’t even purchased your own first home, I personally recommend buying an investment property for rental rather than a home to live in. If you want to see the reasoning for this, take a look at my video that I did on this topic.
Regardless of where you stand, real estate investment is something I think you should seriously be considering even if your goal in your lifetime is just to have one investment property. It can make a significant contribution and a significant difference to your finances both in the short and long term.