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How Successful Investors Make Money in Real Estate: 7 Most Profitable Strategies

Investing in real estate is often seen as a passive income generator. On one hand, it’s true – you can always hand off your property to Denver rental property management professionals, and they’ll do all the work for you. On the other hand, there’s a lot more to it than that.

Even with professionals handling the day-to-day, you still need to be actively involved in your property if you want it to be a success.

The more you understand about the process and what’s involved, the better equipped you’ll be to make decisions that will lead to a healthy return on your investment.

With that said, here are seven of the most profitable strategies for making money in real estate, several of which are beginner friendly:

1. Fix and Flips

First, let’s start with one of the most popular strategies – fix and flips, aka flipping houses.

This is when you buy a property, usually at a significant discount, then make repairs and improvements to increase the value. Once the work is done, you sell the property for a profit.

The key to making this strategy work is to look at everything but the property. Is the area up-and-coming? What are the schools like? Is there potential for future appreciation?

Without those elements, it’s going to be very difficult to turn a profit no matter how low you buy or how much you spend on repairs.

2. Lease Options

Lease options are another popular strategy, especially for beginners. The idea is simple – you find a seller who wants to sell their property but doesn’t have the time or money to make repairs.

You agree to lease the property from them with the option to buy it at a set price in the future. Then, you find a tenant-buyer who pays you rent and has the option to purchase the property from you when the lease is up.

This strategy can be a little more complicated than fix and flips because you’re dealing with two contracts – the lease and the option to purchase – but it can be very profitable if done correctly.

3. Wholesaling

Wholesaling is similar to fix and flips, but there’s one key difference – you never actually own the property.

Instead, you get a seller to agree to sell you the property, then find a buyer who’s willing to pay more than what you agreed to pay the seller.

For this strategy, focus on building a buyers list before you find a motivated seller. That way, when you do find a property, you can quickly sell it and move on to the next one.

4. Rent to Own

Rent to own, also known as lease-to-own, is similar to lease options but with one major difference – the tenant-buyer actually pays part of their rent towards the down payment of the property.

This strategy can be beneficial for both the tenant-buyer and the investor because it allows the tenant-buyer to build equity in a property while they’re renting it. And, it gives the investor an opportunity to sell their property for more than what they would if they just sold it outright.

5. Buy and Hold

The buy and hold strategy is one of the most profitable strategies for experienced investors. The approach here is to buy a property and hold onto it for the long-term, usually 10 years or more.

During that time, you’ll collect rent from tenants and hopefully see appreciation in the value of the property. Then, when you’re ready to sell, you can either sell outright or do a 1031 exchange to defer the capital gains tax.

This strategy is best suited for investors who are looking for a hands-off approach and are willing to wait for a return on their investment.

6. Owner Financing

Owner financing goes like this – you agree to buy the property from a seller, but instead of getting a loan from a bank, you get the loan from the seller. This can be a great way to buy a property without having to go through the bank and can often get you a lower interest rate.

However, it’s important to note that this strategy does come with some risks, so it’s not for everyone. You may want to consult with a financial advisor or a trusted property manager before you decide to owner-finance a property.

7. Multi-Unit Properties

For this strategy, you buy a property with multiple units, such as an apartment complex, and rent out the individual units.

This can be an excellent way to generate passive income as you’ll be collecting rent from multiple tenants. And, it can also be a good way to hedge against inflation as your tenants’ rent will likely go up over time. Working with property management companies in Denver can be really helpful if you want to go this route if you’re not interested in actually being a landlord.

Depending on your appetite for risk, some of these strategies may be more suited for you than others. If you’re just starting out, fix and flips or wholesaling may be a good place to start. And, if you’re looking for a more hands-off approach, buy and hold or rent to own may be a better fit.

No matter what strategy you choose, just make sure you do your research and understand the risks involved before you dive in. Happy investing!

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