4 Important Sources of Income in Real Estate Investing

Wednesday, October 24, 2018, 6:00 AM | Leave Comment

As with other forms of investing, the returns you plan to make on real estate investments should adequately cover the risks, taxes and costs such as insurance, maintenance, and utilities.

Real estate investing might seem complicated, but at its conceptual core, it’s as simple as playing monopoly because it has to do with investment, risk and economy.

The goal is to buy properties, avoid going bankrupt and creating rent income with which to pay bills and buy more property. It is, however, important to note that just because it’s simple doesn’t mean it’s easy.

The consequences of making a mistake can be anything from a minor inconvenience to a disaster. The worst-case scenario is finding yourself broke or in serious debt.

When it comes to investing in real estate, there are a number of ways to make money. Let’s take a look at four important ones.

  1. Real estate appreciation

    This happens when the value of your property increases as a result of changes in the real estate market. The area in which your property is located may become busier because a major retail outlet builds a store there. Or you may have renovated your property and made improvements to it that make it more attractive to potential buyers. Compared to real estate investments aimed at generating cash flow income, real estate appreciation is riskier.

  2. Cash flow income

    With this form of real estate investing, you purchase a property such as an apartment building and manage it. The aim is to generate a regular income from rent—the payment a tenant makes for using the property for a specified period. Properties from which you can generate regular cash flow income include car washes, well-run storage units, office buildings, apartment buildings, and rental houses among others.

  3. Real estate related income

    This is income generated by individuals and firms that offer services in the real estate industry. Individuals include real estate dealers like Team Anderson Property Group who earn commissions from selling or purchasing a property. Firms include real estate management companies which earn a percentage of the rent when they manage the daily operations of a rental property.

    This form of real estate related income is straightforward. For instance, a hotel management company earns 5% of the sales made by the hotel in exchange for managing the daily operations such as running the front desk, hiring, cleaning and other general maintenance services.

  4. Ancillary real estate income

    This can be a highly lucrative source of profit for some real estate investments. Ancillary real estate income is generated from things such as laundry facilities in low-rent apartments and vending machines in office buildings. Essentially, these facilities serve as smaller businesses nested in a larger real estate investment, allowing the owner of the facility to generate income from a semi-captive set of customers.

The bottom line

Real estate investing can be highly lucrative and it has many avenues for generating income. As with other highly profitable investments, it comes with huge risks, so it’s best to seek the guidance of qualified and experienced professionals when making investment decisions related to real estate.

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