How To Make Money From Buying A House
Today, you'll learn how to turn your house into an income generator.
So, you have bought a house, or you’re thinking of purchasing one. Congratulations! Now you are wondering what to do with what will likely be the most expensive purchase of your life.
There are several options now that you are a homeowner. You can live in it and make it your home. You can have someone you know live in it, or a family member. Of course the best decision is to make money from it. Luckily for you there is more than one way to make money from buying a house, and we will go through these now.
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Is it a good idea to make money from buying a house?
Before we get into detail on the best way to make money in real estate by buying a house, lets discuss whether it is a good idea or not. Buying a house has the potential to be a long-term investment, whether it be through rental income, or simply by you no longer needing to pay rent. Once you have paid it off (after 20 or 30 years), then you will have a high value asset completely in your name. Some people will hold onto their house for a long time, and some will flip it for a quick profit. There are tax benefits to home ownership, and once you own a piece of real estate, you will have leverage to help grow your real estate portfolio more. Source: Investor Junkie.
Method 1: Appreciation and house flipping
In real estate speak, appreciation is not what you do when you like something very much. According to Investopedia it is actually the most common way to make money in real estate. Appreciation is what the increase in value is called. So, if you were to purchase a house for $100,000 and spend $50,000 to improve it, you could raise the value to over $200,000. This is appreciation. If you were to then sell the property for $210,000 then you would have made $60,000 in profit. Appreciation can come about by renovations, development and even location.
Flippers will use appreciation to their advantage. They will purchase a house that needs work on the cheap, knowing that what they spend on it will make the property grow in value even more. There are people that make a living from flipping homes, and this is especially profitable if you can do some of the work yourself saving in contractor fees). Appreciation and house flipping can be risky as it involves a lot of startup capital, and if something were to go wrong you may have to end up selling for less that you purchased it in the first place. It does not guarantee a profit, but more often than not it is a good strategy.
Method 2: Traditional rental Income
When you think about different ways to make money from purchasing a house, then traditional rental income is usually what first comes to mind. This is when you rent your entire home to someone for a continuous period. Chances are you yourself have been a tenant in a rental property (or know of someone who has), so you know what its like to pay for the privilege of living in someone else’s home. So why not purchase a home yourself and charge someone to live there. Of course, you will have a mortgage and other costs associated with home ownership, but if you are lucky and find good tenants, the rental income can often cover most if not all your costs. In a way you are then getting your house for free, and then after the mortgage is paid, your tenants have technically paid for your house.
Ideally you would have your rental income to be more than your costs, so that you are making a profit, but this will rarely be a large amount. The main goal here is to wait until the house is paid off, in which case any rental income is pure profit.
Method 3: Other rental income
There is more than one way to receive rental income other than having a single family live in a home for an entire year or more. If you are creative and think outside the box, you will find different ways to create rental income. The Balance MB highlights some of these as being the following:
- Turn your house into a holiday home. If your house is in a high demand area, then you could rent out rooms or the entire property like a hotel – for a nightly, weekly, or monthly fee. You could even live in the house in the winter and rent it out for the summer (or vise versa).
- Run a bed and breakfast. If you have a large parcel of land and many bedrooms, you can run your house like a bed and breakfast. Being able to rent out several rooms to several groups of people can bring in a lot more money then renting out the entire property at once. There is a lot of work and management in running a bed and breakfast though, so be aware of that.
- Rent out storage space. If you do not like the idea of people living in your house, but have room to spare, you can make some money by renting some space for storage. People will be willing to pay to have you safely store their valuables such as cars, boats, and motorbike. Or you could use your basement as a storage unit for people to keep their personal belongings. You need to ensure that what ever space you rent out is secure and insured.
As can be seen here are many ways in which to make money from buying a house. What will work best for you will depend on the house in question, and aspects such as size of the house, location, and what you are willing to use it for. If you are smart and use the houses maximum potential, there is quite a lot of money to be made and purchase a house can end up quite a good long term investment strategy.
Charles is the founder of infoSpike.com. His real estate investing experience started in 2004 and he is currently focused on rental property projects. He enjoys learning about real estate investing, personal finance, and marketing. Read more about Charles here.