5 Smart Ways to Profit From a Hot Housing Market

For housing market investors, rental properties have a number of drawbacks, ranging from poor renters to expensive repairs.

While poorly prepared investors risk their equity if they overpay on a property, the strong housing market suggests that with preparation, there are plenty of opportunities to be found.

No other investment allows an investor to get control of such a large asset while only putting down a small percentage of the purchase price, say 20%.

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That small cash investment may yield a cash-on-cash return of more than 20% annually – and that’s before any tax benefits or price appreciation.

Even in a sellers’ market, seasoned real estate investors have these techniques for making money.

However, there are different ways to invest in real estate, they range from simple stock purchases to fixing and flipping houses and everything in between.

Each has its benefits and drawbacks so, here is a quick guide that can help you profit from the housing market.

Five Ways to Profit From the Hot Housing Market

Individual housing market investors own 74.4% percent of rental properties in the United States, according to the United States Census Bureau.

As prices of property tend to rise over time, real estate is one of the common forms of investments people make throughout their lives.

Also read: Housing Market Prices: Big Reasons Inflation Could Lead to Prices Dropping

According to Zillow, property values in the United States have risen 19.2% since 2020 and they are expected to grow 13.6% in the coming year.

The following are some ways you can profit from the real estate market.

It entails conducting extensive market research, comprehending the closing process and any legal implications, and having the financial means to secure your property.

Investment Properties

Buying an investment property is a straightforward way to make money in the housing market. Buy a house and rent it to long-term tenants or invest in a multi-unit rental property.

You could consider purchasing a vacation rental or a property that you can rent out for a short period.

Alternatively, you may purchase a commercial property such as a retail or office building and rent it out to tenants to create rental revenue.

Also read: JP Morgan US Housing Market Report: Insight Into Where the Market is Headed

Once you have multiple rental properties, this strategy is perhaps the most likely to allow you to generate a consistent income that is substantial enough to live off.

If you take money out of a retirement account or sell your home, you can use this strategy.

Purchasing an investment property can be a lucrative way to make money in real estate, but it comes with its set of challenges, and there’s a lot to learn before you get started.

Real Estate Investment Trusts (RIETs)

A Real Estate Investment Trust (REIT) is a form of mutual fund which invests in real estate.

A commercial property portfolio or other real estate assets are purchased using money raised from investors.

A good number of REITs are traded on the stock exchange and are easy to buy and sell, making them excellent for new investors and those with limited capital.

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Many REITs are easy to buy and sell and are listed on the stock market, making them excellent for those with limited funds and first-time investors.

Many also provide consistent dividends, making them attractive options for investors looking for a consistent income.

There are REITs dedicated to almost any form of real estate and mutual funds and exchange-traded funds that allow you to invest in a wide portfolio of REITs.

Flipping Real Estate

It is another tried and tested method for making money from the housing market.

Fix and flip and BRRRR (Buy, Refurbish, Rent, Refinance, Repeat) methods are where the investor purchases a property, pays for repairs and renovations, and then resells it for a profit or finds tenants.

This type of housing market investing has been the topic of several reality shows but the truth is that this form of real estate investing is inherently risky; if you underestimate the cost of rehabilitation, you can lose money.

Also read: End of the Housing Bubble? 13 Predictors of a Housing Market Crash

While popular fix-and-flip shows make it appear simple, successful house flipping involves a lot of effort and understanding of the local property market, among other things.

If you try to save money by doing the repairs yourself, the labor savings are offset by the time it takes to make the property ready for sale.

DIY repairs that don’t satisfy code or potential purchasers’ expectations are a risk if you’re not a skilled building contractor.

Crowdfunding

Crowdfunding is a relatively new way for making investments in real estate, yet there is money to be made.

When a developer or professional investor sees an opportunity to buy or build a commercial real estate asset, they may choose to crowdfund a portion of the project’s funding.

A crowdfunding deal can aim to buy a hotel, renovate the rooms over a few years, and then sell it for a profit.

There are various legitimate crowdfunding platforms, but it’s worth noting that the majority of the best deals are only available to accredited investors.

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Investors can have access to unique private market property assets through crowdfunded real estate providers that would otherwise be not available to the general public.

They also tend to give higher returns than publicly-traded REITs, reflecting the higher level of risk that these investments may entail.

However, like with any private investment holding in which you’re considering putting money, it’s essential to conduct your research, and not overextend yourself financially.

Real estate crowdfunding can be used to increase and diversify one’s financial holdings while maintaining an overall balanced portfolio of financial investments rather than as a means of generating wealth.

Interest Based Income Through Investing in Mortgage Notes

Mortgage notes can be an excellent real estate investment for those interested in a steady income.

You receive monthly payments that include interest and principal when you purchase a mortgage note.

It’s a consistent source of income, similar to what you’d get from a rental property, but you don’t have to maintain a property as a landlord would.

Investing in real estate across the country is easier because you don’t have to deal with local real estate licenses or tax regulations.

The mortgage note specifies the loan period. You know how long you’ll get loan installments, which is anywhere from 10 to 30 years.

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You can increase the value of a mortgage note by purchasing it from a distressed note holder.

Mortgage notes are available at a fraction of their face value. Either intensify your collection efforts or consider foreclosing on the property.

Only buy notes if you have a strategy for monetizing the property, whether you want to rent it out, sell it, or renovate it.

Investment alternatives range from highly passive and liquid options, such as purchasing an exchange-traded fund that invests in REITs and mortgage notes, to skilled and time-consuming tactics, such as property flipping and crowdfunding.

The ideal option for you to make money is based upon different factors, including your risk tolerance, knowledge and skill levels, liquidity needs, and the amount of time you have.