Investing In Property? Check Out Your Options to Make Money

Property investing is a popular and significant part of many people’s investment strategies, accounting for a substantial portion of portfolios globally. In the US, approximately 25% of all homes sold are bought by second-home buyers, and individual investors account for nearly 71.6% of all rental properties.

For those considering property investment, the prospect of owning a rental property can be an exciting and potentially lucrative opportunity. The promise of generating income quickly can be a powerful motivator for many investors.

Whether you’re a seasoned investor, a homeowner, or someone looking to diversify your financial portfolio, property remains a solid and dependable asset. Its stability and potential for growth make it a valuable addition to any investment strategy.

This post will examine all the different ways you can use property to help you build wealth. From traditional buy-to-let models to holiday lets, REITs, and even reverse mortgages, it will uncover all of your possibilities.

Traditional property investment strategies

Buy to let

It’s no secret that residential properties bought to rent out are popular choices for investors across the world. It’s a pretty simple concept: you buy the property, renovate it to a high standard, and then charge other people to live in it. The rent payments you collect on the property can help cover all the costs associated with owning the property and even help you generate income that you can invest in other properties or another investment strategy.

Pros

1. Steady monthly income
2. Long-term asset appreciation
3. A tangible, relatively stable investment

Cons

1. Property management is time-consuming
2. High risk relating to tenant damage in the property or not paying rent
3. Additional tax implications that can impact your wealth.

Flipping houses

Property flipping, another increasingly popular option, involves purchasing undervalued or run-down homes, renovating them to a high standard, and selling them at a profit. This strategy, particularly effective in emerging areas, can yield significant returns quickly.

Pros

1. Potential high short-term
2. Doesn’t require tenant management

Cons

1. Capital intensive
2. High risk if the property doesn’t sell or renovation costs spiral
3. Requires intense market knowledge

Short-term holiday lets

Thanks to platforms such as Airbnb, many people are able to invest in properties that they can rent out for short-term holidays. This allows investors to still get people to stay in the property while bypassing long-term management and leases. If you purchase property in high-tourism areas, the yield will be significantly higher than that of long-term rental properties.

Pros

1. High short-term gains
2. Greater flexibility for property use

Cons

1. Local regulations regarding holiday lets are being tightened to many
2. Often have higher maintenance and management costs
3. Can be subject to seasonal demand fluctuations

Equity release

Equity release, or reverse mortgage solutions, offers a way to release funds from your property without taking out an additional mortgage or committing to repayments. This can be particularly beneficial for homeowners over a certain age, allowing them to convert part of their home’s value into a tax-free cash lump sum without the burden of monthly repayments.

Reverse mortgages allow homeowners, typically over the age of 60, but in some cases over 55, to convert part of the value of their home into a tax-free cash lump sum. This cash is available without making monthly repayments as you would if you took out a second mortgage on your property.

It’s worth noting that reverse mortgages are only available to property owners who meet specific requirements and aren’t simply just the right age.

However, if you own a high-value property, jumbo reverse mortgages are available, and typically, the property criteria include those appraised above the federal loan limit (which is currently around $1.3 million).

Pros

1. Higher loan limits for jumbo reverse mortgages
2. No monthly repayments like traditional mortgages
3. You retain ownership of the property and can still continue to live in it
4. Flexible payments can be made in one month, so a fixed monthly payout or a line of credit

Cons

1. Interest is added to the amount of money you borrow monthly, which can reduce the remaining inequity over time
2. If the balance grows substantially, this will impact your estate, leaving less for your heirs
3. Reverse mortgages and jumbo reverse mortgages are not federally insured, which means there are fewer consumer protections
4. There are strict eligibility requirements, including underwriting criteria required for higher credit scores

Other property investment opportunities

REITs

REITs, or real estate investment trusts, are an excellent way for people to invest in property without having to buy property outright.

REITs allow you to invest in a diverse portfolio of properties via publicly traded shares. REITs provide regular dividend income and can’t reduce exposure to the risks of direct property ownership.

Co-living and multi-unit conversions

Co-living arrangements are becoming increasingly popular due to the inaffordability of houses and the current market.

Property owners are converting large homes into multiple rental units, which they charge a lower rent for individually; however, as they are collecting various payments from each unit within the property, this can increase the returns per square foot.

Land leasing

If you own land, you might be able to consider leasing it for agriculture, parking, cell phone towers, or even renewable energy projects.

This can offer you a regular monthly or annual income as the company rents the land from you, and it requires very little input and maintenance from you.

Final words

While property can be a profitable investment, it’s crucial to understand that it’s not a guaranteed money-making venture.

There are many risks that property investors take, whether knowingly or unknowingly, including over-leveraging, which is taking on too much debt, full stop, poor market research, for example, buying in the wrong area or during a market peak, which can limit appreciation and potentially later losses. Another major factor that people often get caught up with is underestimating costs for things like maintenance, taxes, insurance, and vacancies.

So, while this is indeed a great avenue to explore for those looking to diversify their investment portfolio, it’s really important that you understand all of the different ways you can make money so you can identify the best option.