Real estate is a sector that allows you to get rich as long as you know how to do it. Even with a small initial capital, you still have an investment opportunity. If you want to know how to make money with real estate, here are some methods that might interest you.
Follow good practices for investing in real estate
To make money with real estate, the first thing to do is to avoid making rookie mistakes. First of all, you have to prepare your project well. Buying a property without knowing if it will be profitable is a mistake. A house that has difficulty finding a tenant can result in more losses than profits.
Secondly, you must be able to form your own opinion. If you rely too much on the opinions of others, you may make mistakes. Don’t settle for vague indications about an investment. If an ad says an investment can give you a 6% return, make sure it can.
You should also keep in mind that it can take a long time for a real estate investment to generate a profit. Patience and perseverance will be required. Therefore, avoid setting the rent too high in order to precipitate a profit.
Be careful with prices
With a rent that is too high, you risk driving away tenants. Your property will remain vacant for a long period of time while you also have to maintain it. This will lead to big financial losses in the long run. Consider adjusting your rent to the neighborhood. It can be set a little below the market price if it still allows you to make some profit.
If your property has certain qualities and features that the market needs, the rent can be slightly above average. On the other hand, be sure to be firm with your tenants about the rent. Unpaid rents that accumulate can present significant losses.
You should also be careful about the price at which you purchase the property you intend to make money on. Many factors can influence the value of a property. You will need to do an appraisal to know if the price you are being asked is fair. If you buy a property at too high a price, you will be forced to resort to bad practices such as charging excessive rent to make up for your losses.
Finding a partner to get started
One of the reasons why people don’t want to get into real estate is because they don’t have the money to invest. However, to break into real estate, it is not necessary to start with a substantial investment. The other reason is the lack of knowledge in the field. Investing in an unknown sector can lead to more losses than profits.
To avoid this kind of problem, it is possible to associate with someone who has good knowledge in the field. By partnering with other investors, you gain many advantages. First of all, your partners can find for you the best properties to invest in. All you have to do is make your contribution and you will receive a profit in return.
Secondly, you can gradually learn everything you need to know to find the best deals. However, it is important to choose your collaborators carefully. Pooling can lead to conflicts if the collaborators do not get along well. There is even a risk that you will lose out on all fronts.
Crowdfunding, the alternative to traditional partnerships
Crowdfunding is a practice that is not limited to real estate. It has gained popularity in recent years due to the advantages it offers. With crowdfunding, there are many more real estate partners, which reduces the share of each investor. But the gains remain tangible and the risks are minimal.
Crowdfunding consists in collecting a certain amount of money from individuals. The total sum collected will then be used to carry out a real estate program. Once the program is completed, and after a sale, each individual recovers his or her share of the investment, with a profit. Many platforms allow individuals to participate in crowdfunding.
In France, there are three different systems that can be used for crowdfunding. There is, for example, the set-up via a holding company with shares in an SCCV. With this arrangement, if there is a bankruptcy, the investors are not reimbursed, but they can stop their investments. They will have to wait at least one year before recovering their capital and the capital gain.
Crowdfunding can be attractive for a beginner. But you have to be careful before you start because it is not a risk-free project. For example, if a project fails, an investor can lose a lot. On the other hand, an investor has almost no control over the capital he has invested, especially since the market has become less clear.
Seasonal rental, a trendy practice
Seasonal rental is simply a practice that consists of renting a property for a short period of time. For example, during the vacation period, when tourists looking for accommodation are numerous. By using specialized websites, you can rent your accommodation for 40 € per night or more. You will earn an interesting sum in the space of a few weeks.
The advantage of this practice is that you are not obliged to make an investment. You just need to have a free room in your residence and turn it into a guest room. Moreover, the tenant will have to pay before being able to use the room, which reduces the problems of unpaid bills. If you have the opportunity to invest in a studio apartment, you can improve it and make it profitable.
By making a seasonal rental, you gain the status of a professional or non-professional furnished renter. It is a status that gives you access to some tax advantages. Your income can, for example, be tax-free for a long period. Furnished properties can also be exempted from the IFI tax.
SCPI and REIT
A SCPI or Société Civile de Placement de Capital is a secure investment in real estate. By investing in an SCPI, you own a share of a property and not the entire property. This allows you to avoid the problems associated with owning a property. A company takes care of the management of the property, which means that you only have to pay a small fee.
With any type of investment, there are always risks, but with an SCPI, these are limited. The disadvantages include the fact that your units are valued according to the market, not your investment.
Three types of SCPIs exist and two of them have different categories. There is the yield SCPI which can be categorized into diversified, retail, office, regional, and specialty SCPI. Then there is the tax SCPI divided into SCPI of land deficit, Malraux, and Pinel. And finally, you have the SCPI of appreciation which is much rarer.
In the United States, REITs are called REITs (Real Estate Investment Trusts). REITs offer a much higher return than SCPIs. Indeed, a REIT has very important tax advantages requiring them to distribute 90% of their profits to their shareholders in the form of dividends.
Become a property dealer
If you want to amass wealth legally, and sometimes very quickly, you can become a property dealer. The main advantage of this profession is the important profit that can be accumulated. The disadvantage is that the slightest mistake is unforgivable, as it can result in huge losses.
If you choose this option, you will need a large investment. You may even have to go into debt to a bank. If you go bankrupt, you stand to lose a lot. You won’t have any money to work with, you won’t be able to raise money, you may end up on the bank’s blacklist, etc.
If you are going to be a property dealer, you will need to have some passion first. This will allow you to get a taste of the many obligations you will face. You will have to do prospecting, profitability studies, build a financing file, etc. You will also have to collaborate with real estate agencies, mayors, notaries, etc.
It is only after having made considerable efforts that you can make a profit. However, this profit is important enough to erase all the pain you may have suffered. Moreover, it is the gain that motivates some people to start this profession.