9 Ways To Earn Money From Real Estate

What if you are told you can earn while you sleep? Would you believe it if you were told it is a reality? You should believe it. 

Many alternative sources can earn you a good income without doing much. This is the concept of ‘Passive Income’. Diversifying your stream of income can reduce your dependency on a single source. Real estate is one such source that can give you very high returns if used correctly. 

Be it to achieve financial stability or create wealth, the concept of investing in real estate can earn you wealth in many ways. If you are wondering how real estate investments can create multiple sources of income for a secure future, we have you covered in this blog. 

Read on to find out more about how you can maximise your returns through rental income, leasing, REITs, and more!

1. Rental Income

One-time investment and ease thereafter! That’s rental income for you. 

Renting out your property and receiving monthly dividends in the form of rental income is one of the most common methods to ensure continued cash flow. This income stream is highly sought after by property owners as it provides a consistent source of income, offering peace of mind and financial security, especially during times when other sources of income may be uncertain or unstable.

The appeal of rental income lies in its stability and predictability. Unlike other forms of investment income that may fluctuate according to market conditions, rental income offers a steady stream of cash flow that can be relied upon month after month. This steady income stream not only provides financial stability but also allows you to plan and budget effectively for future expenses and investments.

2. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts, commonly known as REITs, are investment sources that allow you to invest in income-generating real estate assets. In India, investing in REITs has become popular owing to the fact that they offer accessibility and convenience. REITs in India are regulated by the Securities and Exchange Board of India (SEBI) and have garnered the interest of retail investors. 

A better way to explain it would be to imagine a group of friends pooling in a certain amount of money to buy a rental property. Each in turn would receive a percentage of the rental income the property generates. This is how REITs operate but on a larger scale. Investing in REITs can allow you to generate passive income via dividends distributed by the trust. They hold the advantages of liquidity, diversification of income and professional management. But it must be kept in mind that the returns in REITs are subject to market risks and depend on the performance of your property and management decisions. 

3. Low-cost purchase

Low cost purchase translates to purchasing a property at a low rate for either renting it out or selling at a higher price. Though an effective method, initially it can be challenging as finding a property at low cost isn’t so easy in India. It involves patience, a keen understanding of the market dynamics and diligence. However, taking advantage of a favourable market can lead to considerable financial gains for homebuyers. 

A very effective strategy is for homebuyers to take advantage of sales opportunities such as foreclosures and quick sales. Foreclosure sales happen when the property owner forfeits payment of loans and the property is repossessed by the lender. The lender then puts the property on sale at very low prices to counter losses. Quick sales occur when a property owner wishes to sell his/her property within a short period, often due to urgent financial requirements. They usually are ready to sell it off at a much lower price rather than wait for a higher proposition. 

Capitalising on these opportunities can stand you in good stead as you end up saving a significant amount of money that you could use in renovations and refurbishing. Even then, your savings will outweigh the initial investment. 

4. Increasing Property Value

Property bought is wealth gained! One thing you can be sure of is that real estate appreciates, which means it increases in value over time. For a property to garner profits, several factors are credited such as the location of the property, the surrounding areas, connectivity, and prospects of development. Such properties tend to gain popularity and attract homebuyers and investors more quickly. Buying ata low cost and selling at a higher price is the order of the day when it comes to generating income. 

But even if your property does not match your desired value, you can still apply various strategies to attract prospective buyers. Selling a property at the right time, for the right price, and to the right buyer are crucial factors in impacting the earning potential in real estate investment.

5. Mortagaging

Did you know that putting a property you purchase down to a mortgage can earn you equity? This hidden advantage is usually missed out by many homebuyers and sellers. You earn equity with every mortgage payment you make. Equity is the portion of the property's value that you own outright, excluding any outstanding mortgage debt.

This is how it works- You make a down payment on the property, which is a percentage of the purchase price, and borrow the remaining amount from the lender. A portion of your monthly mortgage payments goes towards paying the principal balance of the loan. Over time, as you pay off, the principle balance decreases, and your equity or ownership of the property increases.

Mortgage interest rates are usually lower than the rate of property over time. This means that while your property's value is likely to increase at a higher interest, you're paying a relatively lower interest rate on your mortgage loan.

6. Renting Smaller Places

This approach involves dividing a single property into multiple smaller units, such as studio apartments, AirBnBs and co-living spaces, and renting them out individually to multiple tenants. By doing this, you are maximizing your rental income and diversifying your tenant base, ultimately increasing the overall profitability of the properties.

This means you rent out multiple units and generate higher rental yields as compared to the rental of one property as a whole. Smaller units also attract a larger spectrum of tenants including young professionals, students, and individuals seeking affordable housing options. This will in turn increase demand for rental properties and translate into higher rental rates and lower vacancy rates, ensuring a steady stream of rental income for you.

7. Renting to businesses:

cCommercial properties leased to businesses offer unique advantages that make them more profitable investment sources. One advantage of renting out properties to businesses is the potential for higher rentals as compared to residential properties. Most businesses, established and successful ones to startups, are often willing to pay high rents for commercial spaces as they seek strategic locations, visibility, brand building and amenities conducive to their operations. This can boost overall cash flow and returns on investment.

Moreover, commercial leases tend to have longer tenancy periods compared to residential leases. Businesses usually prefer a constant space that is easy to access for clients and meetings. This provides greater stability and predictability for property owners. Businesses typically sign lease agreements spanning several years, ensuring a steady and reliable stream of rental income for you over an extended period.

8. Tax Benefits on Interest:

Deducting the interest paid for the mortgage from the rental income collected is indeed a savvy strategy for real estate investors to optimize their tax savings and potentially make their rental income tax-free. In many jurisdictions, including India, the interest paid on a mortgage loan is tax-deductible as a business expense when the property is used for rental purposes.

By deducting the mortgage interest from the rental income, investors can effectively reduce their taxable rental income, resulting in lower tax liability and potentially higher net rental profits. This tax-saving strategy can significantly enhance the overall profitability of real estate investments and improve cash flow for property owners.

9. Tax Benefits on Improvements:

When making improvements to a property, it's important to consider the property tax implications in India. Any improvements that you make to a property are subject to taxes. However, these taxes can often be offset by the rental income you generate from your property.

When you invest in renovations and upkeep of the property, you are increasing the value of the property, which in turn allows you to charge higher rents. The additional rental income can then be used to cover the taxes incurred on the improvements.