When investing in real estate, the main goal for the investor is to make their money work for them so they earn a return on their investment. While investing in real estate can be a complex process with many factors involved, there are five simple ways investors can make money.
1. Appreciation
In real estate, appreciation is when a property increases in value. This could be due to a change in the market, such as land or properties becoming less available or busier. With appreciation, value can increase even if there isn't a change in the physical property. When there is a limited supply of property, a raise in price will reflect the demand. For example, a two bedroom apartment in Los Angeles may cost more than a two bedroom apartment in Omaha, Nebraska simply because the demand for housing in Los Angeles is higher than in Omaha.
2. Cash Flow
Real estate investors earn income from cash flow when tenants pay rent. This type of investing simply focuses on the investor buying a property such as an apartment building, rental house, office building, or storage unit, and operating it in order to collect cash from tenants who pay to use the property for a set amount of time.
3. Development
Property development produces income for real estate investors through the process of building or renovating physical property. As an example, an investor might buy a plot of land and build an office building on the land. The investor can then sell the land for more than it was purchased for because land with a building on it is generally more desirable than the land on its own.
4. Ancillary Income
Income from ancillary sources provide profit within a bigger real estate investment. Examples of ancillary sources of profit within a real estate investment can include laundry facilities in apartment buildings, vending machines in offices, application fees, furniture rental, short term lease agreements, storage, parking passes, late fees, and pet fees. This form of income is non-rent income and can even increase the value of an investor's property.
5. Specalists
Real estate investors that are specialists generate income in their industry by having a service or specialty. Real estate brokers can make money through direct commissions on a sale they make, and can also make commissions if they have a staff of agents working under them. Another specialty within the real estate industry is property management. Property management companies earn money through running daily operations of a property..
