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Real Estate: How to make money

Updated on October 8, 2012

Real estate is one of the safest ways to make passive income. Even though the recent economic downturn has dropped house prices and attributed to fewer buyers, there are still plenty of ways to make money in this very lucrative market.

1. Renovate and resell. This can be quite expensive and as we all know sometimes house prices fall. Most of the time however this is a perfectly good way to make passive income if you don't mind moving around.

  • Find a good house with renovation potential. Move into the house as your primary residence knowing that you are going to live here for a while.
  • Renovate problem areas and areas of highest potential. They say that kitchens and bathrooms pay back nearly double what you put in. Converting large bedrooms into two can be good. Follow renovation trends such as open concept, colors, etc.
  • Sell home and start again.

The key to this when starting out is that you always need a place to live so living in your new home and not having two mortgages really saves money. As well, because it's your principal residence, you would not pay Capital Gains Tax on the increase in value.

2. Convert to double family home. Secondary suites are very often a great idea. If the home is based in a desirable location for renters it will likely make much more money as a double family home. Live in the home while it is being converted and rent out the other portion. Living in a suited home is much more akin to apartment living and requires some getting used to, but the passive income generated can often pay for all or most of the home's mortgage. When you go to sell the home it can now be sold as an investment and will likely fetch a higher price.

3 Room-mates. If you don't have the start up capital required for renovations, getting room-mates can really help with passive income while you grow your savings. In some instances having two room-mates home owners can make more money than with a secondary suite.

We all need food water and shelter to survive. The ultimate goal here is to make the "Shelter" part FREE. We pay so much in rent, mortgage interest, etc. If you use one or more of the above then likely over time you will find that you will not be paying for your shelter, and in many instances be making money from it without interfering with your full time job.

Are there any other great ways to make money from Real Estate? Add them to the comments below!


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    • LindaSmith1 profile image

      LindaSmith1 5 years ago from USA

      Well, this property belonged to my father, who converted it to the 4 apts 20 years ago, with a lot of errors that I have had to pay to have changed, some electrical, rotted flooring covered up, and a beam that should have been in place, that was not. Lucky the house did not fall in. He had the work for upstairs done. I am paying for the downstairs and reimbursed him for the work upstairs. I won't rent out the one unit and make money off of it, but I will make enough to pay the utilities, insurance and taxes, which will keep me from dipping into what little money I have til Social security kicks in.

      I am including all of the utilities, satellite TV, and probably phone/Internet to avoid more wires everytime somebody moves in and then out, for the next one to do the same. Let's see, I opened up rooms. Created 1 large bedroom out of 2. Now have 2 1/2 baths with a separate laundry room. A new kitchen, appliances including dishwasher and microwave, stove, refrigerator, cabinets, and flooring. New flooring all the way through. I chose a quality laminate over wood due to cost. I have quality linoleum in kitchen and bathrooms. I opened up the space between kitchen, DR and LR to provide more space for furniture etc. New drywall in most of the rooms and of course paint. I used a wall board in kitchen, tile board in bath and laundry room, new vanities, toilets, etc. Replaced the exterior doors (2), storm/screen doors. We had to take up rotted flooring and replace that. Redo some wiring while removing the old. This job will cost about $30,000.

      We took the upstairs and turned 2 1 BR apts into a 2 BR, kitchen, LR, DR, laundry room and bath with all new appliances (stove, microwave, dishwasher, refrigerator, cabinets, vanities, toilets, kitchen sinks, faucets, flooring, painted walls, ceiling fans, and new exterior doors and storm doors. linoleum and laminate flooring. The cost here is about $26,000.

      We just replaced the old boiler hot water furnace with a new high efficiency one for about $6000 which will cut the heat costs in half at least.

      I could not even find a house here that did not need major work for less than the cost to redo this property. The cheapest I found was $60,000 and it would have taken probably another $100,000 to gut it and fix it, if not more.

      There are things left that I want to do, but they can wait til next year, or even later. So, taking over the old family home might just be the better deal in the long run.

    • Sevenpoint profile image

      Sevenpoint 5 years ago from Calgary

      Awesome tips, Linda. I love to hear these types of success stories. I love the idea of having a realistic budget beforehand so as to not find yourself in a situation where you have no money and can't complete.

      One additional tip I have is that in many cities, at least in canada, they have Grants associated with properly dividing a single family home into a multifamily home. There are some conditions and it's not always possible to make everything completely legal, but it really can help with a great chunk of the renovation costs of the first home.

    • LindaSmith1 profile image

      LindaSmith1 5 years ago from USA

      Ignore the reality shows like flipping houses, etc. Get a real estate license, then get a broker's license, a property appraisers license is essentially a job in itself without needing a sales license first. Become a mortgage broker.

      The property I have use to be a large home which was converted into 4 one bedroom apts. Now it is a double home, top and bottom, rather than side by side. Once I get done the renovations, the cost will be less than what it would have cost to buy a home that needs updating, and then paying for those renovations. One unit will be my primary home, and I will rent out the other, but won't get the big rent due to the area. But I will be able to cover the utilities and taxes. My advice is to know what the renovations will cost. There are some that can wait til a later date, especially those that are more cosmetics than anything. Know what the rents in the area are. We live in a small town, and the rents here are nothing compared to the bigger towns, or cities. So, next, will the rent charged cover the bills only, or will they provide you with an income as well. If you do plan to rent, you better find out what the codes are before you start renovating. Next, find out how to keep your property as a private residence vs having it be considered an income property (commerical) which will raise your utilities, taxes and insurance.