Real estate is a popular investment. This is because it can provide investors with high returns on their investments. However, just buying any house or building will not get you to your goal for making a substantial profit. Smart decisions and consideration of many factors are required to make a profit. There are three main ways that an investor can earn a return on his real estate investment.

1 – Profiting from an Increased Property Value

It is possible to make more money from real estate investments by purchasing property and then selling it. This is a difficult proposition as homes don’t always appreciate in value. While this does not mean an investor should avoid buying a property, it does mean there are some factors to consider.

Flipping is a method of making a profit by reselling a house for more than it cost. A buyer buys a house that is in a distressed state and has often been foreclosed on, then renovates the house and sells it to make a profit. It can be rewarding, but also risky, as there are many unknowns involved. The home might have serious structural or other issues that you weren’t aware of at the time. There could be additional costs to renovate the home, which could mean the home is on the market for months.

2 – How to Make a Profit from Rental Income

Renting out a building is another way to make money. You could have an apartment building that has multiple tenants, an office building, or a home that only has one tenant. This type of income has some potential drawbacks, such as the fact that your building won’t be occupied and you won’t make any money. A building that has only one tenant could face a devastating vacancy. However, a building that has multiple tenants will have less pressure to be fully occupied. You will need to pay for maintenance, repairs, insurance and possible liability.

The capitalization rate, also known as “cap rate”, is a simple tool that will help you determine the amount of profit you will make. Simply put, the capitalization rate is the sum of the annual income the property earns and the cost of the property. If the property earned $100,000 annually and was bought for $1,000,000, then the cap rate is 10%. This is the maximum amount you can expect to make on the property. Remember that the cap rate assumes that the property was bought in cash and does not have any debt.

3 – Profiting from Real Estate Business Operations

Some investors may also make a profit by investing in real estate businesses. One example is that a business owner could make money by vending machines. Hotel owners could also make money through on-demand movies. Movie theater owners could also make money by ticket sales. This type of real estate investment requires that the investor is skilled in the sector they are investing in.