Real Estate Income: What Is It And How Do You Make It?
What is Real Estate Income?
Real Estate income refers to profit made from real estate. This can be commercial as well as residential. Making real estate income, however, is not a clear and concise path. Being able to generate passive real estate income can have difficulties along the way.
What are the different ways of making income in real estate?
There are multiple ways of creating a regular source of income generated from real estate. Here are 4 of the most common ways investors utilize the real estate market:
- Rental Properties: Typically, investors will need a large upfront amount of money to acquire a property to rent out. Along with this cost will be necessary repairs when the tenants move in. However, if the property in demand in an area that is in demand, the investor is likely able to generate a good amount of cash flow from the property. Additionally, home equity that is generated from owning a property will help the investor, in addition to being able to sell that property years later at a much higher price to appreciation.
- House Flipping: This is a great idea when an investor is able to see opportunity in a property. After careful research, if the investor knows a property is worth the investment, they can purchase a home to fix up and put back on the market. With this, however, there a number of factors to consider.
If after the renovations the investor was thinking of selling the house for a million, but the other most expensive house on the street is only 800,000, you bet it will be difficult to resell. However, if you talk to the right people and do the right research, this is a great way of not only learning more about the real estate market, but making a good amount of real estate income as well.
- Real Estate Investment Trusts (REIT): this is a publicly traded organization that primarily invests in real estate assets that provide income. This is an equity investment that helps investors produce capital appreciation. Similar to a mutual fund, these investors have easier buying power and are exposed to diverse options as well as professional management. Income generated is distributed to all unit holders monthly or quarterly. The significant advantage of this type of investing is that these stocks can be easily bought and sold. And because you would be investing in numerous properties, there is less of a financial risk than owning a single property all on your own. This is an advantage for those who don't want to take on all of the responsibility of owning a property or being a landlord, but still having a chance to earn real estate income (Source: https://www.realpac.ca/page/WhatisaREIT).
- Vacation properties: Like Airbnb, this is a great way of generating a lot of income in a short period of time. As tenants will only stay for a matter of days while paying a much larger sum than someone would for rent, it is a fast way to make cash flow. The downside is that this type of property will require careful consideration, as tenants come in and out, keeping track of damages will be difficult to do. Although with most residences, Airbnb has great insurance programs to protect your property from lost possessions or property damages by the tenants.
How long does it take to start making Income?
The question of how long will it take to make a consistent income in real estate is a common question from real estate investors. Everything takes time and it is difficult to know a concrete timeline of how an investor will experience the market.
There is a positive correlation with how much effort you put into this market and the income you earn. Being able to generate a relatively consistent source of income does not happen overnight. It takes hard work and dedication and experience.
Tracking your progress, your spending and your timelines are important factors in knowing how long it will take you, as an investor, to succeed in this market. There is no concrete answer we can give you. It all depends on having the right support and the right dedication! We like to think that it is all about time in the market that helps make investors as successful as they can be.
As demand for residential properties in southern Ontario is increasing, we are seeing investors make real estate income faster than ever before. Click here to watch a video we made discussing how income properties are winning businesses in a box!
Where should I be investing to generate Income?
As the GTHAs population is growing, we are seeing massive amounts of demand for rental properties. With increased rates of immigration, as well as the fact that Toronto houses 40% of all GTHA jobs, we are seeing more people moving further away from the city, as housing prices are too expensive, and commuting to work every day.
This is creating huge demand in areas that were previously thought of as less desirable. We are seeing so many people utilize this opportunity, as they want to enter this gold mine of a market before others realize how profitable it really is! You can click here to see cities in the area that have been experiencing massive growth, so you as an investor can utilize this as well!
What additional benefits can I expect from trying to generate real estate income?
Although these hurdles can make generating income through real estate much harder, preparing for them and knowing who you can trust is a great way to avoid any issues altogether. And even though there are some cons to the hussle of generating real estate income, there are many pros as well:
- It can be steady and reliable:
- As investors rent out valuable properties, the cash flow coming from these properties can only grow. Cash flow from real estate is the by-product of owning a property and renting it to tenants for a monthly income. If the investor did the proper market research, generating a good amount of cash flow is not too difficult to generate (Source: https://www.thebalance.com/making-money-from-real-estate-investing-357984). And it helps investors as this is a steady and consistent amount every month.
- Investors receive tax benefits:
- There will be long term financial security:
- By owning homes that are rented out, the investor builds home equity. As investor build more equity, they will have an easier time buying more rental properties, and thus generating more cash flow!
- It surpasses the returns that come from classic investments:
- this is because an investor does not have to invest the whole price to be able to see a return. For example, if you wanted to invest $500,000 in stocks, you would have to pay the whole amount, compared to a 20% down payment for a real estate property.
- Real Estate investing provides flexibility based on your needs:
- being a landlord, overseeing every small task in renovations are not necessary when trying to get involved in the market. There are multiple ways to get involved to fit your current needs.
What should I look out for when trying to generate real estate income?
Here are some hurdles that most investors look for before trying to generate passive income through real estate:
- Tenants demands for repairs:
- as with owning any house, damages, as well as faulty materials, are inevitable. As tenants stay at a location, repairs and replacements are bound to emerge. For example, the fridge breaking or air conditioning retiring, the roofing needing to be replaced, leaks, etc. There are an infinite number of things that can go wrong with a property so it is important to be prepared for any repairs or replacements that can cost you thousands.
- Not doing enough market research:
- It's exciting to find a great property at a great price, but it is also important to be able to know how many others will think it's great as well. You want to make sure that the property you are investing in has a high demand. This would be the best way to estimate how much cash flow can be generated.
- Without doing this, it may place the investor in an uncomfortable situation financially, as they will need to be able to cover the properties expenses until a tenant can be found.
- The possibility of not hiring the right team:
- To make a good amount of real estate income, it is important to make sure you have a proper team to have your back. With all the hussle and bussle of trying to get the house rented or sold as soon as possible, it is common for many investors to try and cut corners and take the easiest route.
- Sometimes, however, this results in bad property managers being hired, or contractors who have bad reviews being hired. This can cost not only a lot of time but also a lot of money. By making sure you have a great and supportive team behind you, you can know that you are generating the optimal amount of cash flow!
- Tax for house flipping:
- Sometimes, profits from flipping a residential property can be taxed as business income rather than capital gain. This would mean you would have to pay tax on 100% of the profit, compared to 50% from capital gains. This also all depends on the type of property, how long you hold on to it and what you intent was with the property. This will all be looked at by the CRA to determine how much an investor would be taxed.
How do I move on from here? Where do I get more information about topics like this as well as other real estate investing need-to-knows?
To us, it’s simple. Keep investing in financially beneficial assets that can build up real estate income and wealth. (Click here to learn the difference between the two!)
We are big believers that investing in properties that have great cash flow, appreciation and equity is the ideal way to thrive over the next several years.
By learning how to get involved in real estate and stay updated with the newest projections has helped us tremendously in knowing how to benefit off from a gold mine that most Canadians don’t even know exists yet.
With historically low interest rates and thousands of people moving into the GTHA over the next several years, we believe there will be continued demand for great properties in great areas, leading to an easier time generating real estate income!
To learn the exact same strategies we’re currently using with hundreds of investors, you can download a free digital copy of our book Income For Life For Canadians at this URL: www.FreeCanadianBook.com
This book normally sells on Amazon.ca for $24.95, but we’re sharing a digital copy for free because we want as many people as possible to learn how to take advantage of the population growth in the GTHA.