Let’s talk for a minute on how to make money in real estate. I am sure you have heard it a million times now: “There is money in real estate” or “Anyone who is sitting pretty has invested in real estate.” While both of these statements can be true, let me share with you the reason why. Real estate is a very lucrative business to be in. The most important note on that topic would be diversification. Without diversification, all of your eggs are in one basket and that isn’t a very promising business plan. Instead, you need to have multiple streams of income.
You need to have passive income creating assets. For this, I always go by the 1% rule. The 1% rule says that you need to collect at least 1% of your all-in price (including closing and repair costs) in rent. Really, what it comes down to is how much is your money worth to you and what do you need to get back to make it worth your time.
Paying Down Principal
While your tenants may be giving you cash flow, you can also profit by paying down your mortgage. This will give you more equity in your property.
The market has a tendency to double every twenty years. It often goes up and down in the short period of time; however, overall it is always rising. This could be a great investment if you have the patience or you could pair it with another strategy, like cash flow, for instance.
Often times this is seen in a fix and flip situation. If you were to buy a fixer-upper at a discounted price and then fix it up and sell it, your profit would be considered equity that you were able to capture.
Just imagine if you paired all four of these strategies into the same deal. Your profit margins could increase with time.