3 Active Ways Make Money in Real Estate
There are lots of ways to make money in the real estate game. Some of those ways are passive while others are active. A passive real estate investor might put their money into a property fund. They might invest in a holding company that rents a portfolio of commercial or residential properties. By contrast, an active investor is more hands-on.
Active real estate investment involves being an active participant in turning a property from a liability into an asset. Actium Partners, a hard money lender based in Salt Lake City, UT, says there are numerous ways to do so.
Hard money lenders appreciate real estate transactions because the acquired properties represent hard assets more than capable of backing up loans. Furthermore, Actium Partners says that hard money lenders tend to specialize in certain kinds of deals based on their own preferences. Below are three possibilities. Note that Actium does not necessarily fund all three types of projects.
1. Real Estate Development
At the top of the list is real estate development. This is a scenario in which an investor purchases a piece of land with the goal of doing one of two things: either developing it from the ground up or improving what’s already there. One investor might buy an empty plot of land and build with an eye on retail. Another investor might purchase land with existing office buildings already on it, planning to add more office space by way of new buildings.
There are also real estate developers who purchase large parcels of land that eventually get subdivided for residential building. One might buy fifty acres and develop it into a 150-house neighborhood. Conversely, an investor might use the land to put up multiple apartment buildings.
2. Real Estate Rentals
The second way of making money in real estate is to indulge the rental market. An investor can choose commercial rentals, residential rentals, or combination of both. It really just depends on risk tolerance and personal preference.
Commercial rentals are a bit riskier in that they tend to go as the economy goes. For example, a lot of commercial real estate firms took a huge hit in the aftermath of the COVID pandemic in 2020. Companies that got used to employees working from home decided not to renew their leases, leaving vast amounts of empty office space and no tenants to rent it.
Residential rentals are considered a bit safer inasmuch as people will always need housing. Rental rates may not always be as high as investors might like, but keeping houses occupied is rarely a difficult task. The real challenge is avoiding tenants who do not pay.
3. Real Estate Flipping
Third on the list is real estate flipping. Again, this can be a commercial or residential enterprise. We hear about it most often in the residential environment, thanks to the popularity of house flipping from the early 1990s through the mid-2000s.
Among all three real estate opportunities, flipping is the riskiest of all. There are never any guarantees in the flipping business thanks to constantly changing real estate markets and renovation costs. However, the most successful flippers make good money doing it. They know the game inside and out. More often than not, their gains seriously outweigh their losses.
If you are interested in investing in real estate, know that there are both active and passive ways to do so. An active investor puts a lot more direct effort into making money compared to a passive investor. The upside to active investing is the potential to generate much higher returns.