How to Make Money in Residential Real Estate | 5 Ways to Apply

Are you interested in making your money work for you? Maybe you are a seasoned investor looking to diversify your portfolio, or you might be taking the first steps in becoming an investor and are looking for guidance regarding Residential real estate. Let’s find out how to make money in residential real estate.

Without a doubt, if done rightly, residential real estate is a path to wealth and riches. There are many opportunities and workable strategies for success in this business. Residential real estate offers a variety of ways to make money- either a constant monthly income or one-time revenue, depending upon your need and level of involvement.

However, people often remain skeptical about entering into this business as they think they need to start with huge capital, but that’s not always the case. So, here is a quick guide that can help you make money in residential real estate. 

How to Make Money in Residential Real Estate

• Buy and Hold
• Fix-and-Flip
• Vacation Rentals 
• Student Accommodation 
• Wholesaling

Buy and Hold

One of the most popular strategies for investment in residential real estate is bought and holds. You can buy property as an investor and hold it until the price of your asset appreciates and then sell for a quick handsome profit as soon as the prices rise.

It is a long-term strategy often involving five years or more. During this long-term holding, you may either reside yourself in the property or rent it out to a trustworthy tenant to generate passive income.

The investor can apply a buy-and-hold strategy on almost any kind of residential property, such as single-family homes, turnkey real estate, and multi-family buildings. The additional benefits of buy-and-hold include:

• It is safe and comes with few risks.
• Tax deductions: as a property owner, you have to bear maintenance expenses, and many of them are tax-deductible so that you can write off things such as a mortgage, interest, loan fee, etc.
• Equity: When you rent out your property, it’s your renters that end up paying your mortgage. If the rent is significant, it may also cover the interest on the mortgage.

Fix-and-Flip

House flipping is yet another effective strategy to earn huge profits within a shorter time. It involves the investor buying a rundown and low-valued house or property, renovating the property to enhance its value, and finally, selling it off for profit.

To generate significant profit, you have to understand better how much the fixing and renovation would cost. If the fixing cost is high, your profit might be lower and vice versa.

It is challenging and involves various risks; hence, it is unsuitable for beginning investors. Furthermore, to gain higher profits, the whole process of buying the rundown house, renovating it, and then selling it off must be completed as soon as possible (normally within a year).

If you keep the property for a longer duration, its value might decrease, or additional problems in the property may arise. Moreover, while selecting a property for flipping, you need to be very careful about its location as a desirable neighborhood may increase your chance of making more money and vice versa. House flipping has the following benefits:

• It is a short-term venture
• Doesn’t require a huge investment.
• Generates quick profits.

Vacation Rentals 

If you own or buy a property near a tourist spot, you can rent it out to travelers and tourists on a short-term basis. It is an alternative to hotels, and various residential properties can be used for this purpose, including spare bedrooms, apartments, homes, villas, condos, and even tents and boats. You can either offer your guests a complete service range similar to hotels or offer them total independence.

Nowadays, travelers seek to save money and experience local settings, cultures, and food; hence, they prefer staying in a local home than in a hotel. People seek vacation rentals on online travel agencies like Booking.com, TripAdvisor, and Airbnb that cater to this type of accommodation.

There are four benefits you can get from vacation rental property

• Availability for your personal use in the future whenever you want to take a break from your stressful work
• Passive income source for you
• Tax deductions as you can write off most of the maintenance expenses.  

If you are interested in high-yield investment, then student accommodation investment is for you, as it provides a predictable income. If you invest in a property such as a bedroom, an apartment, a house, etc., in town or near an educational institution for adults, you can rent it out to students.

You may offer both lodgings and messing services depending upon what’s possible for you, or skip the messing part and provide only residential services. The student accommodation business is heating up in major towns as it provides a secure and predictable monthly income to the investors.

Student Accommodation

If you are interested in high-yield investment, then student accommodation investment is for you, as it provides a predictable income. If you invest in a property such as a bedroom, an apartment, a house, etc., in town or near an educational institution for adults, you can rent it out to students.

You may offer both lodgings and messing services depending upon what’s possible for you, or skip the messing part and provide only residential services. The student accommodation business is heating up in major towns as it provides a secure and predictable monthly income to the investors.

Wholesaling

If you do not have enough capital to invest yourself, you may have the option to work as a wholesaler to make money in residential real estate. As a residential real estate wholesaler, you will have to work as a middleman between potential home sellers and buyers or real estate investors.

A residential real estate wholesaler finds cheap properties and negotiates the price with the investor or buyer while cutting out his profit margin. But one thing that should be kept in mind is that wholesaling can be a very time-consuming job, and the person needs to be very well conversant about the ebb and flow of the market. 

Consideration before Investing in Residential Real Estate

Location

Location plays a key role in increasing or decreasing the property’s value. Also, the location determines the level of facilities the property would bring with itself, such as communication, cable, power, and others.

Neighborhood

As an investor, you must consider the factors such as the accessibility, appearance, security level, and benefits of the neighborhood, along with development plans.

Transportation and Communication 

The property’s proximity to busy highways, motorways, and community centers may make it hard to maintain or resale the property.

The Residential unit itself

You must consider both the quality of a house as well as the price of the land on which it is built to access its exact value.

Frequently Asked Questions

How much money do I need to invest in the Residential real estate business?

The amount of money you will need depends on the type of residential property you intend to invest in. Normally a single-family unit is perfect to begin a career in the residential real estate business.

Tenants are nightmares’ is this perception true? How will my property be profitable in such a case?

A landlord can have a smooth experience with the tenants if they are diligent and investigate thoroughly before letting people in as tenants. Careful examination may help you to differentiate “good” from “bad” tenants who would take care of your property as their property and pay you to rent regularly.

Can residential real estate businesses help me get rich quickly?

This depends on what type of residential real estate investment you are considering. You can invest in house-flipping as it is one of the quickest ways of making profits, just like the vacation rentals business. However, the buy-and-hold strategy might not be workable for you as it’s a long-term venture.