MyFinancialTimes is a reader-centric site. We may receive compensation from the products and services we mention or recommend in this story, but the opinions are the author's own. Remuneration may impact where offers appear. We may not include all available products or offerings. To learn more you can visit our advertising policy and editorial policy.
Investing in real estate is not a one-size-fits-all proposition. The amount of money you make depends on how much time and effort you’re willing to invest. You need to gauge your level of real estate expertise, and ask yourself how much you’re willing to disrupt your life.
Then, whether you’re a real estate beginner or a seasoned pro, you can set your parameters.
Get Started Investing in Real Estate
If you have a demanding job but want some passive income, here’s a way to get started investing in real estate that doesn’t require you leaving your desk: use an online trading platform, as you likely already do for your regular and retirement investment accounts.
Real estate developers list projects on these sites, and investors decide which to invest in, receiving distributions monthly or quarterly based on their initial investment. These are speculative investments. So while you can make a lot of money, you can also lose it all. And you generally need to demonstrate high income or net worth in order to be authorized on these platforms.
Make Money Investing in REITs
Another (and slightly less restrictive) way to make money investing in real estate — without investing in physical real estate — is something called a real estate investment trust (REIT). REITs are companies that own commercial real estate like apartment complexes, hotels, offices, and retail properties.
Often compared to mutual funds because each fund holds numerous types of assets, REITs are just as risky as any investment. But they’re particularly popular in 401(k)s as, regardless of the share price, they tend to reward investors with high dividends.
Given that 401(k)s allow investments to grow tax-free until withdrawal, that makes them a great option for retirement investment should you wish to maximize your 401(k)s by reinvesting the dividends.
A lot of online trading platforms offer a range of publicly traded REITs as an investment option, so this is a simple option (and especially good for beginners) if you have a regular online brokerage account like Fidelity or Vanguard and want to start investing in real estate. If you don’t, it’s easy to sign up for one.
Rent Part of Your Home
We’ve gone through a couple of ways to make money investing in real estate without leaving your home, or making any significant changes in your life. Now we’ll go through a few more hands-on ways to do it. The first is to rent out part of your home or apartment via a temp-rental site like Airbnb.
This is a good way to start if you have a little extra space but aren’t committed to having a full-time roomie. And with Airbnb, you get peace of mind (including a measure of prescreening and damage control). So you might want to start by making your spare room your rental room — especially if you live in a city where people are frequently visiting for events, conferences or any other major tourism reason.
It’s not a stock-market investment, but it’s a way to start making money in real estate.
Whether you rent your apartment on Airbnb or rent a room to a neighbor, there are many simple ways to make money in real estate. Photo credit: Shutterstock.com
Consider a Full-Time Renter
Whether you transition from the Airbnb phase into a full-time renter or you’re ready to start here, this is one of the most popular ways to make money in real estate. You might be able to score more money with Airbnb if you can get a high nightly rate and are consistently booked. Going with a long-term renter ensures a more steady, secure stream of income.
Of course, while it’s less daily work (i.e., no cleaning and getting the room ready for the next guest every few days), it is more work overall, as you’re responsible for keeping your tenant happy, and everything in prime working order. Plus, having a roommate is more of a major life shift than just having part-time guests.
Overall, it can be a compromise, but the monthly check may be worth it.
Buy a Rental Property
So far, we’ve only talked about single-family dwellings where you live, and rent a part. But another option, if you want to get started investing in real estate, is to either buy a single-family property to rent out, or buy a multi-family property to rent out while you live in one unit.
Unlike Airbnb or renting a room in your place, this is an actual investment as you can benefit from the property’s price appreciating (and get all the tax benefits of home ownership) while using rental income to defray — or even entirely eliminate — your mortgage costs.
This is called “house hacking” — using your home to make money — and it often gives people who can’t afford a particular home or neighborhood, a chance to do so because of the potential to earn money on the property.
Say you are comfortable investing in real estate but don’t want to deal with a renter. Is there still a way to make money investing in real estate? Yes there is. Welcome to the wacky world of house flipping — or buying well-priced homes that are either distressed assets or just in need of some major fixing — then renovating them and selling them for a profit.
This is only for people with great design and architecture skills, or access to a team of talented (and affordable) contractors. You also need great knowledge of real estate and what constitutes good “bones” when it comes to a house or apartment. If you don’t know what you’re doing, you could easily have yourself a money-pit situation. So tread carefully!