How Investment Properties Can Make You Money

Over the past half-century, investing in real estate has become increasingly popular--so much so that it is now one of the most common investments private investors make. While it's true that the recent housing boom and bust has left many broken homes and bankrupt investors in its wake, with a steady analytical mind and a patient disposition, you can avoid the pitfalls most commonly associated with investment properties.

According to the US Census, real-estate values in the United States have consistently trended upward on average since 1940, despite year-to-year spikes and dips that cause short-term variance in market prices. With this in mind, the patient investor can win out if he or she is wiling to also carefully analyze the value of a property before buying it as an investment.

Your two opportunities to profit from investment properties are renter's fees and property value appreciation.

Renter's fees are exactly that: fees you can charge to tenants to rent your investment property as a place to live. Generally speaking, landlords charge just enough rent to cover the cost of the mortgage, maintenance, and taxes on the investment property until the mortgage is paid off--and after that, that portion of the renter's fees are pure profit. But if you manage to buy a property at a significant discount to its fair value, you may be able to charge more than this amount in order to make a profit from the beginning.

Property value appreciation is the positive difference between what you paid for the property and what you can sell it for. If you're investing in real estate, a large portion of your profits will come from its appreciation in value--especially if you're not investing for the extremely long term. This is why it's so important to be sure to select the right real estate at the right price before making your investment.

In your path toward profits from property investment, the most important step is the next one: research. Don't make the same mistake thousands of speculators made during the housing bubble by getting swept up in hype and popular opinion. You need to do real research on available properties for investment before you can make an informed purchase.

So explore your local area, understand the demographics of nearby neighborhoods, home-value trends and incomes to determine what the best locations are for different types of rental properties. Consider full apartments, lofts, duplexes and houses in your search. What customers can you serve? Make a list of best-case scenarios, then survey the area for available properties and go from there.

You'll of course also need to consider your own timeline and current finances, but we'll save that for another hub. Good luck and happy hunting!