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Making Money in Real Estate - Ten Basic Ways

By - 2007

Making money in real estate is an endless subject which includes all the various types of real estate investments - land, apartment buildings, homes, commercial buildings and more. Whichever type however, you'll make your profits in some of the basic ways listed below. Why not use this list to get yourself thinking of the possibilities?

1. Appreciation in value. Making money in real estate can be as simple as waiting. To really get the most appreciation, however, you should buy in an area where demand is growing faster than the supply.

2. Depreciation write-offs. After all the tax law changes, you still get to declare a loss for depreciation that doesn't really exist. This can save you a lot at tax time, meaning more after-tax profit. To maximize your write-off, buy property with its value primarily in the buildings, since you can't depreciate the value of land.

3. Mortgage loan pay-down. You gain equity with every mortgage payment you make. Get the lowest interest rate to have more of each payment go towards the principal.

4. Cash flow. When you buy income property properly, you have your tenants paying all the costs and paying down the mortgage loan, and also have positive cash flow.

5. Buy below market. When you buy low you get instant equity that will be converted into a profit when you sell. Offer reasons for the seller to sell low: a fast closing, cash, assumption of debts or liabilities, etc. Or just make a low offer. Sellers often have their own reasons to sell cheap.

6. Sell above market. Clean it up, make it easy to buy, and find the right buyer to get top dollar. The following four on the list cover ways to create value, so you'll get more when you sell.

7. Offer seller financing. You often get substantially more for a property if you offer financing. This is especially true if you let someone buy with less money down. You can also get good interest on the loan, which is another source of profit.

8. Change the use. If there's a higher use, convert the property to make it worth more to the next owner. This could mean making condos into apartments, or apartments into condos. Perhaps converting a home into office space will get the biggest return.

9. Make improvements and repairs. Repairing things is obvious, but you need to look creatively and carefully to find the right improvements to make. Concentrate on those that raise the value several times more than what they cost you.

10. Sell it in parts. In real estate, the parts are sometimes worth more than the whole. Splitting off an extra lot to sell for $30,000 will rarely decrease the value of a home by that much, so you'll make more money in the end.

Making money in real estate is a wonderfully creative process. Try looking at the sources of profits listed here, and thinking of ways to maximize a few of them on your next real estate investment.

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