There are multiple ways to make money from real estate including rental income, short term rentals, price appreciation, development & renovations. Intact in some properties you can make money from multiple streams in a single property.
Net Rental Income: Giving your real estate property for a long term lease has its benefits. But the rent minus all expenses should ideally be surplus – this is called net rent. You should have a few dollars in surplus after your mortgage payments, property taxes, maintenance costs and taxes. With time, if you could accumulate a portfolio of properties, all with a positive net rent, it could add to a good amount of passive income from real estate.
Price Appreciation: Over a longer period of time, real estate has appreciated in value, in some countries more than the other. Real estate value appreciation is another way to make passive income over a long term investment, however make sure you take into account any taxes and commissions you may have to pay when you sell. This includes capital gain taxes on the profit you may make. In certain jurisdictions like Canada, your principal residence may be exempt from any capital gain tax.
Renovations: Another way to make money from a real property is to undertake renovations or home improvement projects that increase the value of your home. Renovating your kitchen, bathrooms or flooring are good ways to increase the value of a home. Adding a legal basement suite may be the best option in major cities with huge rental demand. Adding a basement not only increases the value, but gives you much desired cash flow to keep your pockets full. This method is however not passive as renovations require planning and finding the right resources.
Development: There are a few entrepreneurs who like to purchase land, change its zoning, sever the property into multiple lots and build homes to sell for a profit. This forms the basis of real estate development and there are a range of developers doing this ranging from individuals to large corporations. To undertake real estate development, you need to be financially sound and have knowledge of construction and it’s processes. Even a slight change in the construction schedule could mean additional mortgage or loan payments and thus a decrease in your profits.
Short term rentals: We all know the concept of Airbnb and the opportunities around it. There are other short term websites as well that give you the opportunity to rent your condo or home for short periods of time, sometimes even for single days. The idea is to charge a higher per day rent and thus make more money compared to long term rentals. You will need to maintain your property and be careful that your short term tenants do not damage or misuse the property. Some websites allow you to charge a security deposit and a cleaning fee. Imagine how much money you could make if you have multiple properties listed for short term rentals.
REITs: Some real estate income trusts are traded on the stock market and you could theoretically invest in real estate through purchase of shares. REITs manage income producing real estate properties of all kinds. You make money through the increase in the value of shares. Investing into a REIT may free you from the hassle of purchasing and selling properties.