Making money in real estate investing is a continual topic that includes all the diverse types of real estate investments. There is land, multifamily apartment buildings, residential homes, commercial office buildings and much much more.
But how do you actually MAKE THE MONEY on any of them? I mean really, most people don't actually take the time to figure out the "funnels" of cash using real estate. I'll give you a hint: it's not just about selling it higher than you bought it for... there's actually WAY MORE.
I'll give you the top 10 money making funnels in real estate investing you might not know-- and costing you thousands--hundreds of thousands--- or possibly even millions of dollars (for you big time investors).
# 1 Funnel of Cash: Appreciation.
Let's start out with the widely known one. Yes, you can make a profit in real estate as simple as holding on and waiting. The problem is, if you wait too long, sometimes you're property value might go down. You seen that during bad economic times and that's not good. Appreciation should not be the number 1 funnel for making money in real estate but it's a plus.
# 2 Funnel of Cash: Depreciation.
Yes, you actually save lots of money by depreciating your property. What is depreciating you ask? It simple words, it basically means, writing off your taxes legally and humongously. I think I spelled that right? Real estate investing provides those with huge tax bills to be drastically reduced, so that means more money for you and less to the government. Not that we don't like to pay taxes but don't you think you already pay enough of them?
# 3 Funnel of Cash: Amortization
You gain equity with every payment you make. Remember in real estate investing, tenants are paying for to live in your property. That income helps pay down the debt on the property. And guess what... the more the debt gets paid, the more equity your property has.
# 4. Funnel of Cash: Cash flow.
I should have mentioned this before #3. Oh well, it's not in order. Anyways, successful real estate investors make money off their rental income. And after subtracting all the expenses, you should be left with a nice fat check. When in investing in income property the right way, you not only have your tenants paying all the costs and paying down the mortgage loan, but you also keep the different known as positive cash flow.
#5. Funnel of Cash: Built in Equity.
Rich, really rich real estate investors know that you make money when you BUY not just when you sell. When you buy below market, you get instant equity that will be converted into a profit when you sell. How would it be like to know you have cash waiting for you? That is exactly how it is when you invest smart. During bad times, real estate investors actually find more deals with built in equity, as sellers are dumping their properties out of desperation. More on that later.
#6. Funnel of Cash: Sell high.
Real estate investors are salesman too. After improving the property and steadily increasing its income through rents, your property will be worth much more than you first bought it. It's up to you as the investor to increase the property's value. Once you increased its value, you should sell it as high as possible.
#7 Funnel of Cash: Offer financing.
You notice how banks seem to have all the money? How it would be like to be your own bank? Well, with real estate you can be. You see, when selling a property, you can agree to your buyer to finance the property. When that happens, you get to make money through the interest you receive. It's like printing your own money-- literally.
#8 Funnel of Cash: Change use.
If there is a greater use for the property, you can convert it to make it worth more to the next owner. Occasionally this means making condos into apartments, and vice versa. Even land, turning an agricultural zone land to a commercial can mean hundreds of thousands in instant profit.
#9 Funnel of Cash: Cash Out Big Time.
Did you know you can make lots of money without paying ANY taxes? Real estate investors--- scratch that, millionaire real estate investors do this all the time. How? Simple. After improving the property they acquired, whether it's through income increases, expense decreases, or a combination both, they refinance out the equity to the utmost ability. For example, to give you a quick number example, when you can increase the bottom line of a property by an extra $100,000 a year that equates to $1.4 million dollars of equity. And yes, you can pull out that $1.4 million tax free through a loan, WHILE still enjoying the added income. More on this later.
#10. Funnel of Cash: Sell in Parts
In real estate, the parts can often be worth more than the whole. For instance, breaking up off an extra lot to sell for $30,000 means more money in the end. Plus, you can even use that cash to build a property on the lots next to it, and make even more money.
Wanna know another funnel of cash-- that if multiplied by a dozen properties can mean an increase income by 10x?
Of course, you do. Did you know real estate investors that own apartment buildings and even commercial buildings have found little nuggets of gold in their properties?
Vending machines and laundromats. Cool, huh? Adding vending machines and laundromats to your properties can mean additional income that can equate to 10 more paying tenants.