Investing in houses is not a get rich quick scheme, it requires sound strategy, a focused plan, and perseverance. Having said that, home investors who invest wisely tend to experience a gradual, then an exponential, growth in wealth. Despite this, inherent dangers lurk in every deal and these risks must be weighed against home investing revenue advantages like price appreciation, tax benefits, and passive income. This article will detail the ways houses can generate income and how home investors make money in the context specifically of its author, Good Vibes Homebuyers.
What’s in it for you
How much do house investing businesses make in a year? What about in a month? The answer to those questions can vary wildly and depends on the size of a homebuyer’s portfolio but even more so on an investor’s investing strategy. This section covers the most prevalent methods house investors have used to make money.
Due to the prevalence of home improvement reality TV shows, when folks think of making money through real estate, fix-and-flip is often the first strategy that comes to mind. What’s portrayed on your home’s TV screen is, however, rarely reality as fixing and flipping houses represents the highest financial risk. Perils aside, property flippers are home investing companies or individuals who specialize in buying low and then paying for and making high-return fixes and improvements in a short time so that they can then sell the house on the open market at market price.
Making investment money through rent houses is typically the second strategy that folks think of and unlike appreciation, rental income is regular and easily accessible. In short, buy and rent home investors receive a fixed payment from tenants each month and after paying all expenses, the amount remaining represents a home investor’s passive income. The problem, at least in central Texas, is that practically no rent homes produce passive income during an investors initial 5 to 10 years of ownership. After this period, however, home investors often earn passive income because rents typically will have increased while the mortgage payment has remained constant.
Investment real estate historically has appreciated which is when property values increase over time or through forced appreciation (the concept of renovating a property while decreasing its expenses to force values up). Appreciation is most often the greatest source of home investing wealth, its problem is, however, that gains through appreciation cannot be realized without selling or refinancing. Nonetheless, the magic of appreciation over time is, as Albert Einstein famously once said, the “eighth wonder of the world” because it compounds. And compound interest is absolutely confounding (below example uses 5% annual property appreciation):
