There are many other different ways to earn as a real estate investor, but everything falls within these 3 major groups mentioned above.
Everywhere in the world, these are the 3 major ways real estate investors make money, and it has always been like that.
The problem is that, even though Real Estate is one of the surest ways to earn both active and passive income, these three methods cost a lot of time, energy and money.
The question then is, how else can the ordinary earn from investing in real estate without giving an arm, a leg and an ear? This is what you will learn in this short article.
Pay attention, you’ll be done in less than 3 minutes.
One word that allows anyone to earn an income from real estate investment whether it is for a short period or for the rest of their lives is what we call EQUITY.
Hold on, let me explain what this means to you.
In simple words, equity is the amount of ownership a person owns in a company or in an investment.
Here’s an example.
Two friends, Tunde and Osas decide to do a business that involves buying yams from Benue state, transporting them to Lagos and selling them at a higher price.
The total capital needed to start this business is ₦250,000, and each of them is meant to contribute some money so that they can start the business.
If Tunde contributes ₦100,000, and Osas contributes ₦150,000, it would be unfair for them to share the returns equally when they eventually sell the yams.
So what do they do instead, they share the returns according to the amount that each of them contributed.
After selling the yams, Tunde would get 40% of the profit, because he contributed 40% of the capital, while Osas would get 60% of the profit because he contributed 60% of the capital.
This is what we call EQUITY.
Tunde had 40% equity in the business, while Osas had 60% equity.
So let’s bring it to Real Estate.
The ONLY way you can earn good income from real estate investments without spending so much on buying land or building a house is by owning equity.
…and in a few minutes you’ll learn how equity can help you earn both short term returns and long term passive income from real estate.
But first, you need to understand that equity can allow you to invest in real estate markets that would ordinarily take you years of hard work to invest in.
Equity can allow you to own real estate in neighborhoods that you had only wished you could invest in.
Equity can allow you to own real estate in countries you don’t live in and in foreign currency and thanks to technology, you don’t have to visit any of these properties or even see them at all.
Equity allows you to own multiple real estate investments without breaking the bank, all you need is a good strategy.
The best part is, you can transfer your equity in real estate investments to your children, or your next of kin.
Now let me explain how you can own equity in real estate in two simple ways.
1. CO-INVESTING
This is a short term approach, and it is divided into 2 strategies.
This method of investing allows you to own equity in a real estate project over a short period of time.
This short period could be anywhere from 1 year to 5 years.
Let us look at the 3 strategies one after the other.
Strategy One.
Involves investing in a project before the project begins and then when it is sold, you earn returns.
For instance, let’s say it costs ₦65million to build a 4-bedroom duplex, and after construction, it is sold for ₦90million.
This means that the total profit from the project is 38%, which is about ₦25million,
If you decide to invest in the construction of this property, when the property is sold, you would earn 38% of what you invested.
Let’s say you decided to invest ₦1million in the project, when the building is sold, you would get 38% of your money as profit, which is ₦380,000 in addition to the money you invested.
That is ₦1,380,000 upon completion of the project.
Someone else who invested ₦5million in the same project would also earn 38% returns but his 38% would be ₦1.9million and that is because he has more equity than you do in the project.
You get the idea now?
The more equity you hold in a property, the more money you can make from it.
It’s that simple.
Strategy Two.
The second way to own equity and earn returns is to co-invest in a cash flowing property and earn a part of the rent generated from this property.
Let me explain this using one of our investment properties in lagos.
So we got a 10-year lease on a 2-bedroom apartment somewhere in lekki and after furnishing it, we decided to put it on the shortlet market.
Of course the reason we decided to put it on the shortlet market is because of the high yield rental income the shortlet market has compared to the regular rental market.
Now let’s say you decide to partner with us on this project, and you decide to contribute 5% of the total cost of the project. Every year, when we collect the rent from this property, we will pay you 5% of the profit after taking out the cost of managing the property.
This way, you do not have to own the property, lease the property or even manage it.
You just have to invest in it, and because you own EQUITY in that property, a part of the rent that comes from the property, goes to you, for the entire lease period of the property.
Now let’s assume that we are constructing this cash flow property from scratch and we invite you to partner with us.
You can co-invest, which allows you to invest in the development of the project and then sometime later, you can cash out by selling your equity in the property. This way, you earn your returns after a short period.
Now, what if you decide that you want to own equity in this property and earn rent for life?
Now here’s the second way you can own equity in real estate.
2. CO-OWNERSHIP
Unlike co-investing, co-ownership is a long term strategy.
However, it is a strategy that actually gives you passive income for life, or at least for as long as you want to hold that investment.
In fact, co-ownership allows you to build your own real estate portfolio, one property at a time, starting with what you have, without waiting years to be able to afford investing in real estate.
Here’s how it works,
If a 2-bedroom apartment in lekki which sells for ₦50million is divided into 100 shares, it means that one share of that apartment sells for ₦500,000.
Let’s assume that you decide to purchase 5 shares in that apartment, that means that your total investment in that apartment is ₦2.5million.
₦2.5million divided by ₦50million is 0.05. Multiply that by 100 and you get 5%. It also means that you own 5% of that entire apartment.
You get it?
Now what this means is that whenever that apartment receives rent, 5% of the entire amount goes to you.
This investment strategy can give you passive income for the rest of your life and it is the simplest way anyone can own real estate and earn rent like the rich without waiting years to buy a whole property.
No long story.
There are different ways to start investing in real estate using the equity strategy. You can bring your friends together and form an investment club that will make this happen.
