Content of the material
- Frequently Asked Questions
- How do real estate investors make money?
- What percentage of real estate investors fail?
- How much can I make from house flipping?
- Rental Income as a Margin of Safety
- Why Aren’t the Numbers More Specific?
- Tips for making money with real estate investing
- Don’t quit your day job until you’re truly ready
- Be selective
- Location is key with rental property
- Get a great agent
- Lean on REITs
- Family matters
- Real Estate Investor / Marketing / Recruiter
- Personal Admin For Busy Real Estate Investor
- Real Estate Profits From Income
- Raw land income
- Residential property income
- Commercial property income
- Alternative Real Estate Income Sources
- MBSs, MICs, and REIGs
- How to make more money as a real estate investor
- Do more deals
- Get a mentor
- Improve at least one skill
- Change your location
- Increase your rents and prices
- Rental as a Real Estate Investment
- Should You Invest in Real Estate?
Frequently Asked Questions
How do real estate investors make money? Real estate investors can make money through reselling properties at a higher price, earning a fee on wholesale properties, and through rental income. If the investor is holding property for rental, they may also earn money through appreciation of the property value. Inflation can also play a role in increasing the property value and in investors making more money on the final sale. If you are ready to get started, check out our overview of how to invest in real estate.
What percentage of real estate investors fail? While some estimates say as much as 95% of all real estate investors fail, that is because of just a few simple factors: lack of planning, research, and/or time to follow through. A good real estate investor salary doesn’t come without work. The most important work is to gather your team, do your research, and get a good mentor. If you follow the steps in our real estate investing guide and consistently apply what you learn, you will be at the 5% success rate in no time. There is no limit to your real estate investor salary.
How much can I make from house flipping? Real estate investor salaries from house flipping can easily reach $100,000 or more per year. The key to great returns on house flipping is to carefully select your target neighborhoods, accurately calculate renovation costs, and secure a quick sale. TV shows can make it seem like house flipping gives automatic returns. In reality, this requires far more research and perseverance. But, as you learn the market, house flipping can lead to a consistent salary and good ROI. For more information, read our full guide on how to start a house flipping business.
Rental Income as a Margin of Safety
Rental income can be a margin of safety that protects you during economic downturns or collapses. Certain types of real estate investments may be better suited for this purpose. Leases and rents can be relatively safe income.
To go back to our earlier discussion—about the challenges of making money from real estate—office buildings can provide one illustration. Typically these properties involve long, multi-year leases. Buy one at the right price, at the right time, and with the right tenant and lease maturity, and you could sail through a real estate collapse. You would collect above-average rental checks that the companies leasing from you have to provide still—due to the lease agreement they signed—even when lower rates are available elsewhere. Get it wrong, though, and you could be locked in at sub-par returns long after the market has recovered.
Why Aren’t the Numbers More Specific?
It can be a challenge to accurately predict a rental real estate investor’s income because there is a myriad of factors to be taken into consideration. For example, looking at the cash flow of each property, as well as the different properties owned by the investor.
Due to the fact that real estate investing is mostly a local business, the yearly investor’s income will be determined by the local market. The average salary for a real estate investor in North Carolina is about $99,000, whereas, in New York, it’s over $136,000.
Tips for making money with real estate investing
Don’t quit your day job until you’re truly ready
As they say: Don’t quit your day job. Real estate requires a steady cash flow, and if you’re getting it from your full-time job, there’s no reason to disrupt that. It can take years of hard work, and often, years of losses to make it to the top. So don’t rush the process, or you could wind up in a tough situation.
What’s more, a lender will want to see steady proof of income before giving you a loan. Simply put, quitting your day job might make it harder to secure the funding you need to buy a property.
It’s also important to be highly selective about the properties you purchase. Take your time and rely on the guidance of experts to help you make the right decisions.
Just because a property seems like a guaranteed money-maker, it doesn’t mean that it will be. The best investments are often the ones that you don’t make!
Location is key with rental property
Location is absolutely imperative for success when looking for a rental property.
Let’s say you find a stellar unit at a great price. If it’s in the wrong part of town, you may have a very hard time renting it out. In many cases, you’re better paying more for a prime location because you’re less likely to have difficulty occupying or offloading the property.
Get a great agent
Finding a great realtor is half the battle. Avoid working with a friend or relative just because they’re in the industry. Only go with the top performers to increase your chances of success.
Ask your personal network to see if they can recommend someone awesome. If you already know successful real estate investors, ask for their opinion on which agent(s) they recommend.
You should also look for specialty agents for buying and selling. Often, agents excel in either one area or the other. It’s somewhat rare to find a pro at both buying and selling.
Lean on REITs
When you start out in the real estate market, you’ll be challenged on several fronts: managing your property, keeping your clients and tenants happy, and assessing larger market conditions and trends. Real estate investing can be a full-time job, making it very difficult for someone with another full-time job.
Consider testing the waters with investments in REITs and learning the market from the ground up. Invest slowly and track the market over a few months or years. Try to increase your bottom line by making wise investments.
Then, when you’re ready, look into supplementing your investment by purchasing a direct property. You’ll have a better understanding of how the market works, decreasing your chances of making a bad investment.
Mehta has always worked hard. He was born and raised in Baltimore, where he lived with his parents, immigrants from India, and his three older siblings.
His mother owned a few businesses and his father was a doctor, and for most of his childhood, the Mehtas lived comfortably. But they lost much of their wealth during the market crashes of 2000 and 2008, he says.
That instability drove him to want to earn his own money from a young age: He would sell candy bars between classes in middle school, and got a part-time job at a country club in high school.
The Mehta family on a trip to Ellis Island.Courtesy of Sahil Mehta
"Our parents never wanted us to be stressed or pressured," he says. "But, inadvertently, seeing what they were doing to provide for us was a lot of pressure."
In 2014, he visited his brother Sparsh, 31, at UC Berkeley, and knew instantly that's where he belonged. He moved to California to spend his senior year at Berkeley High School, bunking with his brother in college housing and working at Chipotle to earn money on the side.
At the same time, he discovered he could earn college credits at the local community college that transferred to UC Berkeley. He earned enough to enroll in college as a junior.
Sahil Mehta, center, and his sibilings.Courtesy of Sahil Mehta
He worked throughout his two years at Berkeley to cover tuition, and paid off a $10,000 federal loan shortly after he graduated with his Sotheby's income. He says he had no assistance from his parents paying for his education.
"I was trying to be entirely self-sufficient," he says. "I needed to do it myself."
Real Estate Investor / Marketing / Recruiter
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Real Estate Profits From Income
The second big way real estate generates wealth is by providing regular payments of income. Generally referred to as rent, income from real estate can come in many forms.
Raw land income
Depending on your rights to the land, companies may pay you royalties for any discoveries or regular payments for any structures they add. These include, for example, pump jacks, pipelines, gravel pits, access roads, and cell towers. Raw land can also be rented for production, usually agricultural production, and land tracts with trees may be valuable for the timber that can be periodically harvested.
Residential property income
The vast majority of residential property income comes in the form of basic rent. Your tenants pay a fixed amount per month—which will go up with inflation and demand—and you take out your costs from it, claiming the remaining portion as rental income. A desirable location is critically important to ensure that you can secure tenants easily.
Commercial property income
Commercial properties can produce income from the aforementioned sources, with basic rent again being the most common, but can also add one more in the form of option income. Many commercial tenants will pay fees for contractual options like the right of first refusal on the office next door. Tenants pay a premium to hold these options whether they exercise them or not. Options income sometimes exists for raw land and even residential property, but they are not common.
Alternative Real Estate Income Sources
Real estate investment trusts (REITs)s, mortgage-backed securities (MBSs), mortgage investment corporations (MICs), and real estate investment groups (REIGs) are investment alternatives within the real estate sector. They are generally considered vehicles for deriving real estate income but they have varying processes for doing so and varying processes for entry.
With a REIT, the owner of multiple commercial properties sells shares (often publicly traded) to investors (usually to fund the purchase of more properties) and then passes on the rental income in the form of a distribution. The REIT is the landlord for the tenants (who pay rent) but the owners of the REIT record income once the expenses of operating the buildings and the REIT are taken out. There’s a special method to assessing a REIT.
MBSs, MICs, and REIGs
These are even a further step removed, as they invest in private mortgages rather than the underlying properties. MICs are different from MBSs in that they hold entire mortgages and pass on the interest from payments to investors, rather than securitizing portions of principal and/or interest. Still, both are not so much real estate investments as they are debt investments. REIGs are usually private investments with their own unique structuring, offering investors equity investments or partnership servicing.
Several credible real estate alternatives are available for making money in the sector but they come with varying caveats and entry points.
How to make more money as a real estate investor
As you can see, your estimated salary as a real estate investor can vary greatly. Fortunately, investors have a lot of control in their careers. That means if you're not making what you want or just want to scale up, there are plenty of steps you can take to do so.
Here are just a few ways you can improve your earnings as an investor:
If you've only flipped properties or rented out single-family homes, expand into other forms of real estate investing. Add a few vacation homes to the mix, try a multifamily property, or give wholesaling a whirl. You'll increase your earning potential — plus, you could find something you're really good at or just enjoy more.
Do more deals
This one's pretty simple: The more deals you do, the more you'll earn. If you're only doing five flips per year, think about adding another two. If you have two rental properties, consider a third (maybe even a duplex or triplex to really increase those earnings). Just keep in mind that the bigger your portfolio grows, the more work you'll be required to do. So be prepared and set aside the time (or team) to do it.
Get a mentor
If your real estate career isn't quite panning out, then look to someone who's come before you. Many successful real estate investors offer coaching and mentoring programs, and they can help guide you on growing your career and your earnings. Attending networking events is a great way to find a potential mentor. You can even ask your favorite real estate agent for some recommendations in the area.
Improve at least one skill
Read, take classes, and make it a point to improve at least one of your basic investing skills. If you improve your negotiation skills, for example, it might mean lower costs and higher returns on your next flip. If you increase your knowledge of carpentry, it could reduce rehab costs down the line. Even small, incremental improvements in your capabilities can make a big difference on your bottom line — and your real estate business as a whole.
Change your location
The data above spells it out: Real estate investing returns vary widely depending on where you're active. If your properties aren't delivering the return on investment (ROI) you've been hoping for, then branch out location-wise. Try a real estate investment in a new city or even a new state. Just be sure to do your research and identify the real estate market with the highest potential possible before diving in. You'll also want a plan in place for how you'll manage the property (or just the deal) from far away.
Increase your rents and prices
Obviously, if you charge more rent or price your flips higher, you'll make more cash. You'll just need to be careful here and make sure the price hike is justified. If it's not, you might find yourself with a vacant property — and that can hurt your earnings (and cash flow) more than anything.
Rental as a Real Estate Investment
Making money from collecting rent is so simple that every 6-year-old who has ever played a game of Monopoly understands on a visceral level how the basics work. If you own a house, apartment building, office building, hotel, or any other real estate investment, you can charge people rent to allow them to use the property or facility.
Of course, simple and easy are not the same thing. If you own apartment buildings or rental houses, you might find yourself dealing with everything from broken toilets to tenants operating meth labs. If you own strip malls or office buildings, you might have to deal with a business that leased from you going bankrupt. If you own industrial warehouses, you might find yourself facing environmental investigations for the actions of the tenants who used your property. If you own storage units, theft could be a concern. Rental real estate investments are not the type you can phone in and expect everything to go well.
Should You Invest in Real Estate?
Real estate investing can offer robust long-term returns that are not entirely correlated with the stock market. But costs and risks can run high when you invest in physical property, which may make REITs the best choice for those who have limited money to invest or who aren’t looking for a primary residence.
If you do decide to purchase rentals properties or start flipping homes, make sure you’re fully aware of the risks you’re taking on and have a plan on how you will earn back your investment. Remember: Real estate can be very illiquid in the short term, which means it can be a big financial commitment. If you have any questions about getting started with real estate investing, talk to a financial advisor.