Categories
Real Estate

How To Buy Airbnb Property

Learning how to buy Airbnb property and to create passive real estate income is easier than ever. In addition, when it comes to real estate investment, there is one type of income that you should understand: Passive Income. This model of income has been taught by Robert Kiyosaki, a well-known real estate investor. He discusses these concepts in his book, Rich Dad, Poor Dad.”

In this article we not only discuss how to buy airbnb property, but also how to generate passive income money from real estate investments, such as temporary rentals like airbnb. We will also discuss the BRRRR method for rentals how this may be a methodology for scaling your investment portfolio of properties.

Things to Consider When Buying Airbnb Property

There are several things to consider when determining how to buy airbnb property. Airbnb considerations include:

  • Location: In the City or Countryside? Near Events or Tourist Area?
  • Type of Development: Small Cottages? Apartments? Houses? Tents?
  • Cost of Property/Expenses: How much does it cost each month to maintain your units?
  • Local Restrictions for Rentals: Are there local ordinances or restrictions on rental properties?
  • Profitability: Calculate whether the properties will be profitable or not.

How to Buy Airbnb Property and Create Passive Income

Owning an Airbnb is one of the best ways to create passive income in real estate. As a result, it is simply earning money with little or no effort. Moreover, with passive income, you earn money while you sleep or vacation. Although this idea may sound impossible, it is a secret that millionaires and billionaires have utilized for hundreds of years to become wealthy through how to buy airbnb property.

Common examples of passive income include owning leisure property or investment rental properties. Of course, there are other examples of passive income, like stock dividends, high-yield savings accounts, annuities, and real estate investment trusts (REITs) as well.Cash Flow Real Estate

Unfortunately, although passive income may seem like easy money, it’s not. Generating passive income requires upfront work that lays the groundwork for future income. It is not a get-rich-quick scheme. In addition, it may require some additional work as you move forward. For example, if you own a leisure rent property, you will be required to pay for property maintenance, improvements, taxes and insurance on your investment.

Methods to Make Money Investing in Real Estate

Rental Income, Appreciation, Tax Deductions, Creative Services

Learning how to buy airbnb property is one of the simplest ways to generate rental income. Rental income is a type of passive income that is generated from charging tenants of a property rent each month.

Examples of rental income sourced through learning how to buy airbnb property can include cabins, tents, small or large homes and any other creative cottage you can think of. Ideally, successful recreational property investment involves selecting an area where there is an attraction or a tourist area. The investor purchases recreational property in these areas and then leases the space to short-term tenants, generating passive rental income.

In addition, when searching for any real estate property you want to maximize the quality of your investment. Purchasing properties that require minimal improvements or renovations is best. Moreover, the property purchased should be at or below market value. Obviously, you don’t want to buy a property in the middle of a real estate bubble, which could be worth less the following year. In addition, one of the things to know when considering how to buy airbnb property is to negotiate the best deal possible.

Appreciation

Next to generating rental income, appreciation of property values is the second most well-known way to generate income and how to buy airbnb property. Property appreciation occurs when market prices increase overall or when improvements are made to a property.

Recently, the United States has seen significant increase in market prices across the board for real estate. In fact, many experts believe that the real estate market has been in a bubble and prices are at an all-time high.Cash Flow Real Estate

However, even if the market didn’t lift the value of your leisure property, it may have increased simply as a result of capital improvements. For example, if you own an apartment complex, perhaps you added covered parking to the complex or installed a swimming pool. Both of these would be considered improvements, which would theoretically increase the value of the property. Appreciation, or an increase in the value of the property would only be realized upon sale of the property.

Creative Services

There is a great way to generate income from your leisure properties that many people don’t even consider. There may be opportunities at your properties for add-ons or additional services that you haven’t considered. For example, installing vending machines or charging for covered parking. The only limit to providing these services is your own creativity.

Many of these services require little or no expense, effort or improvement to the property. For example, having a third-party vendor install a vending machine can cost nothing. Yet, you can earn a percentage of sales from the vending machines by contracting with the vending company.

Tax Deductions and Depreciation

There are many tax deductions for leisure real estate property owners. In many cases, when properties are treated as a “pass-through,” a tax deduction can be taken. Moreover, the tax savings can mean thousands of extra dollars in your pocket.

There are also depreciation options for certain landlords to take advantage of. These allow property owners to deduct the costs of personal property, such as onsite equipment, appliances, etc., from their taxable income. Follow up with your tax professional for more information regarding tax deductions.

Where Should I Buy Investment Property?

Shifting Populations: People are Leaving the Big CitiesTop Canadian Silver Stocks

It’s important to understand that real estate prices are likely going to decrease in the near future. Namely, the reason for this is that demand will begin to shrink to reflect a weak economy. In addition, migration will slow and knowing where to buy can help when considering how to buy airbnb property. However, there will be winners and losers in the market short term. For example, it appears that in the short term, a divided real estate market may present itself. In addition, keep in mind that each city has its own real estate market that varies.

Current data being reported in the media shows people leaving larger coastal cities and going to smaller inland cities. For example, Californians have been moving out of California to places like Washington, Arizona and Texas in record numbers. This is not a new phenomenon and the trend appears to be gaining speed.

As a result, larger coastal cities like Los Angeles and New York City are seeing reductions in demand for real estate as residents leave the cities permanently. In turn, smaller cities like Phoenix and Las Vegas are experiencing higher demand for real estate as residents move in from the coastal cities.

It appears that in the short term, cities where people are moving to (like Las Vegas) may see higher prices during the coming real estate bubble deflation. The worst-case scenario for cities receiving the influx of those moving from elsewhere would be that property values would remain steady.

Juxtaposed to this phenomenon, larger cities are seeing an increase in available real estate, causing supply to outpace demand. As a result, prices are already dipping lower in cities seeing a mass exodus.

Are You in a Growing or Shrinking Real Estate Market?

The lesson here is that in order to make logical real estate market predictions for your home market, determine whether you are in an area where people are moving to or from. For example, if you live in Phoenix, Arizona, you are probably in a strong market that is attracting Californians. As a result, prices will likely be stable or even positive in the near term.

Now, one other caveat to consider is the state of the economy currently. Unfortunately, unemployment rates are high the US. Higher unemployment rates are negative for home buyers and are typically seen as a harbinger for decreased demand. As a result, unemployment may cause a decline in home buying nationwide. But we still haven’t answered the question of where the best place to buy rental property might be. Let’s take a closer look at demographics.

Demographic Changes

In “The Demographic Cliff” by Harry Dent, it is noted that the baby boomer generation (“Boomers”), those born between approximately 1946-1964, are retiring now. As a result, these baby boomers will be down-sizing from larger homes to smaller homes and buying vacation homes.

Prior to the COVID-19 Pandemic people were already beginning to shift in where they lived and how they lived. Now, the changes in living patterns and demographics have been accelerated. In general, more people will move out of bigger cities and move to areas with less dense populations. For example, people are moving out of cities like Los Angeles and moving to places like Idaho. Obviously, when considering how to buy airbnb property, purchasing property in expanding markets like Idaho may improve your long-term returns on the investment.

Individuals are selling expensive homes and flats and buying more affordable properties to replace the high priced, big city real estate. Boomers are selling their large family homes and moving into smaller, more affordable homes.

Rental Properties

How to Invest in Real estate passive income

You may be wondering how the big real estate investors acquire so many properties in just a few years. Well, the secret to buying more investment properties is using the “BRRRR” strategy. So, what is BRRRR and how will it help in buying more investment houses?

The BRRRR Real Estate Strategy for Real Estate Passive Income

“BRRRR” stands for buy, rehab, rent, refinance and repeat. The BRRRR investment strategy has been very effective for successful real estate investors. It allows investors to build a portfolio of investment properties quickly. In addition, it requires using less personal capital. Let’s breakdown this step-wise process to understand the details and the order of this strategy.

Step 1: Buy Real Estate Investment Properties

Buy Undervalued Properties and Calculate Profitability Before Jumping In

Once you have determined that you want to focus on real estate passive income, such as apartments, duplexes or larger complexes, it’s time to buy. First, you will want to search for real estate passive income via undervalued or significantly discounted properties. Many investors credit their profit margins to buying investment houses at prices that are significantly below the potential market value.

Next, after screening properties, you must do some calculations. One calculation that can help determine whether the real estate passive income you have chosen is profitable is the After-Repair Value (ARV). This will tell you what the potential investment property is worth after it has been rehabbed. If the cost to rehab a home is too high, profitability can be an issue. In turn, this can jeopardize your BRRRR strategy.rent a room extra cash

Finally, you will want to conduct a rental analysis. A rental analysis is a process of determining how much rental income the property is capable of generating. You will use this value in your overall profitability calculation for the deal.

Some other considerations: Don’t forget to include costs such as closing costs, rehab costs and the amount of cash that you will put down for financing. Many investors expect to use 20% down for investment houses. Clearly the BRRRR method is a great way for how to buy airbnb property.

Step 2: Rehab Investment Property

The next step in the BRRRR process is to begin repairing and renovating (rehabbing) the real estate passive income investment property. The object of the rehab is to quickly conduct repairs that will make the home appealing, safe and add value to the property. In addition, you want to rehab the property as quickly as possible. Furthermore, the quicker the process of rehab is complete, the quicker you can begin earning money from rental income.

Step 3: Rent Investment Property

After completion of the property rehab, it’s time to find tenants for your property. Good tenants will consistently provide income (in the form of rent), for your airbnb property and for your investment. Furthermore, a good renter will take care of your property and not allow it to be damaged. Carefully determine what the market rental rate is for your area. In turn, this will ensure that you quickly find a renter and the property doesn’t sit vacant for months. In addition, you will want to properly vet potential tenants to make sure you find renters who are the best fit.

Step 4: Refinance Your Investment Property Challenges of Working with Lenders, Obtaining Financing and Economic Cycles

The third “R” in the BRRRR process is refinance. After rehabbing the property and finding a renter, you can begin to look for a lender. The refinancing process means you will be working with a bank to borrow money based upon the remaining equity in the property. However, there are several things to know about refinancing real estate.

First, banks typically only lend approximately 75% or less of the appraised value of the property in a cash-out refinance. The lender will consider your credit score when determining whether to lend money to you. In addition, you may need to demonstrate that the property is generating rental income and is legitimately appraised at the value you say it’s worth.

Dealing with banks can be a slow, frustrating process. Keep in mind that banks only lend money in situations where they feel that the money is secure. Furthermore, they don’t want to lose money or lend too much money out for an overvalued property. In addition, economic cycles can change factors such as interest rates and credit flow. For example, after the 2008 housing crisis, it was very difficult to obtain a loan from banks and the BRRRR method was not smooth.

Step 5: Repeat the Process

If everything lines up correctly, the BRRRR method will be a success. You will find an undervalued property, buy the property, rehab and rent it and then obtain financing that you can use to buy the next property. You can then repeat the process of acquiring investment houses. If the BRRRR method is successful, you will be generating a net profit each month.

Getting Started with Real Estate Passive Income

Buy Where There is Growth and Population Movement – The South and West United States

One rule that smart real estate investors use is to buy properties where populations are growing. Population growth and population movement tend to drive prices up in real estate markets. Basic economics tells us that when there are more people demanding housing, supply cannot keep up with demand. As a result, prices go up, which is good for landlords.

For many years, there has been growth in the South and Western United States. For example, a United States Census Bureau 2019 Article states that of the 15 cities in the US with the most growth, eight of them were in the South, six were in the West and one in the Midwest. Popular cities include places like Phoenix, Arizona, San Antonio, Texas and Jacksonville, Florida.

How to Buy Airbnb Property Wrap Up

Hopefully this article has helped you understand how to buy airbnb property and generate passive income from real estate. Buying real estate to generate passive income as an investment can be a great opportunity for generating wealth for many years. Using the BRRRR method for acquiring investment properties is a proven strategy for success in generating passive income. In addition, real estate may be a safer investment right now compared with other options.

Read More:

Housing Market Crash of 2021

Best Place to Buy Rental Property

Why Saving Money is Important

Investment Houses

10 Things to Know Before Starting a Budget

Value Investing Books

Home Buying Power

Real Estate Market Predictions

Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

 

Categories
Real Estate

Cash Flow Real Estate

In 2021, there are many ways in the property market to create cash flow real estate options. In addition, when it comes to real estate investment, there are three types of income that you should understand: Earned Income, Passive Income and Portfolio Income. This model of income has been taught by Robert Kiyosaki, real estate investor. He discusses these concepts in his book, Rich Dad, Poor Dad.”

In this article we not only discuss cash flow real estate, but also how to generate money from many different types of real estate investment. This includes the BRRRR method for rentals and Real Estate Investment Trusts. We also make some predictions for the future.

Earned Income

If you work at an 8-5 job, working Monday through Friday, you receive earned income. You might be a manager, a cashier or a trucker. For example, you may be paid hourly or by salary. As a result, if you don’t work, then you don’t typically get paid. Essentially, you are trading your time for money.

There are 24 hours in a day and 168 hours in any given week. Most people work a 40-hour work week shift. However, even if you worked every hour of each day, there is a limit to how much money you can earn. Even if you wanted to work 30 hours a day (which is impossible), you cannot violate the laws of universe.Cash Flow Real Estate

In addition, there are limits on taxation with earned income. The IRS has established tax rates for all earned income, based on your earning bracket. For example, a single person who makes $40,125 – $85,525 is taxed at a rate of 22%. Money is automatically taken from your salary each month. The tax money is then sent directly to the IRS. Although there are things you can do to reduce your tax bill, there’s not much wiggle room on how much the IRS takes.

Creating Cash Flow Real Estate with Passive Income

Passive income is one of the best ways to initiate and create cash flow real estate. As a result, it is simply earning money with little or no effort. Moreover, with passive income, you earn money while you sleep or vacation. Although this idea may sound impossible, it is a secret that millionaires and billionaires have utilized for hundreds of years to become wealthy through cash flow real estate.

Common examples of passive income include owning commercial property investment rental properties. Of course, there are other examples of passive income, like stock dividends, high-yield savings accounts, annuities, and real estate investment trusts (REITs) as well.

Unfortunately, although passive income may seem like easy money, it’s not. Generating passive income requires upfront work that lays the groundwork for future income. It is not a get-rich-quick scheme. In addition, it may require some additional work as you move forward. For example, if you own a commercial rent property, you will be required to pay for property maintenance, improvements, taxes and insurance on your investment.

Methods to Make Money Investing in Real Estate

Rental Income, Appreciation, Tax Deductions, Creative Services

Rental Income

The most common way to make money via cash flow real estate is to generate rental income. Rental income is a type of passive income that is generated from charging tenants of a property rent each month.

Examples of rental income sourced through cash flow real estate include medical facilities, warehouses, business offices, strip shopping centers and the like. Ideally, successful commercial property investment involves selecting an area where growth is occurring or that is densely populated. The investor purchases commercial property in these areas and then leases space to tenants, generating passive rental income.

In addition, when searching for any real estate property you want to maximize the quality of your investment. Purchasing properties that require minimal improvements or renovations is best. Moreover, the property purchased should be at or below market value. Obviously, you don’t want to buy a property in the middle of a real estate bubble, which could be worth less the following year. In addition, purchasing at the right price will maximize the cash flow real estate you receive.

Appreciation

Next to generating rental income, appreciation of property values is the second most well-known way to generate income and cash flow real estate. Property appreciation occurs when market prices increase overall or when improvements are made to a property.

Recently, the United States has seen significant increase in market prices across the board for real estate. In fact, many experts believe that the real estate market has been in a bubble and prices are at an all-time high.

However, even if the market didn’t lift the value of your commercial property, it may have increased simply as a result of capital improvements. For example, if you own an apartment complex, perhaps you added covered parking to the complex or installed a swimming pool. Both of these would be considered improvements, which would theoretically increase the value of the property. Appreciation, or an increase in the value of the property would only be realized upon sale of the property.

Creative Services

There is a great way to generate income from your commercial properties that many people don’t even consider. There may be opportunities at your properties for add-ons or additional services that you haven’t considered. For example, installing vending machines or charging for covered parking. The only limit to providing these services is your own creativity.

Many of these services require little or no expense, effort or improvement to the property. For example, having a third-party vendor install a vending machine can cost nothing. Yet, you can earn a percentage of sales from the vending machines by contracting with the vending company.

Tax Deductions and Depreciation

There are many tax deductions for commercial real estate property owners. In many cases, when properties are treated as a “pass-through,” a tax deduction can be taken. Moreover, the tax savings can mean thousands of extra dollars in your pocket.

There are also depreciation options for certain landlords to take advantage of. These allow property owners to deduct the costs of personal property, such as onsite equipment, appliances, etc., from their taxable income. Follow up with your tax professional for more information regarding tax deductions.

Alternative Methods for Property Investment

Long Term Investment Income (Portfolio Income)

Portfolio Income from long term investments is earned is made by capital gains. Assets can be examples of portfolio income. For example, if you own stocks, bonds, property, etc., you have portfolio income. When you sell your assets, hopefully they have increased in value while you held them. As a result, during the sale you incur capital gains.

For example, let’s say you bought $1,000 worth of stock in 2018. Now, in 2020, you decide it’s time to sell the stock. The stock is now worth $1,500 in the market. When you sell the stock, you will realize a $500 capital gain or profit ($1,500-$1,000 = $500). Capital gains from assets like stocks and bonds are how Wall Street traders make money.

Real estate property investment can also become portfolio income. Even if you own a commercial property for which you collect rent, you can still realize capital gains as well. For example, if you decide to sell your commercial real estate investment, you may profit from the sale (assuming the property is sold for more than you paid for it).

Real Estate Investment Trusts (REITs)

A REIT, or real estate investment trust, is a company that owns and manages real estate assets. REITs take advantage of special tax savings, allowing them to incur minimal corporate income tax. In addition, a REIT pays dividends, a type of passive income for commercial real estate investors. Historically, many REITs have paid increasing dividends each year, which means your passive income stream might grow with little effort.

However, with any investment comes risk. Some REITs are inherently riskier than others. For example, a REIT fund that contains a large number of commercial property investment assets will be less risky than owning one REIT stock with less diversification.  In addition, determining which REITs to invest in can require significant time for a business analysis of each business’s records.

Another risk with REITs is reduced dividend income. Historically, during economic downturns such as the real estate market crash of 2008, REITs lose significant value. When this occurs, dividend income can be slashed or removed completely.

Where Should I Buy Investment Property?

Shifting Populations: People are Leaving the Big CitiesCash Flow Real Estate

It’s important to understand that real estate prices are likely going to decrease in the near future. Namely, the reason for this is that demand will begin to shrink to reflect a weak economy. In addition, migration will slow and knowing where to buy can maximize the cash flow real estate. However, there will be winners and losers in the market short term. For example, it appears that in the short term, a divided real estate market may present itself. In addition, keep in mind that each city has its own real estate market that varies.

Current data being reported in the media shows people leaving larger coastal cities and going to smaller inland cities. For example, Californians have been moving out of California to places like Washington, Arizona and Texas in record numbers. This is not a new phenomenon and the trend appears to be gaining speed.

As a result, larger coastal cities like Los Angeles and New York City are seeing reductions in demand for real estate as residents leave the cities permanently. In turn, smaller cities like Phoenix and Las Vegas are experiencing higher demand for real estate as residents move in from the coastal cities.

It appears that in the short term, cities where people are moving to (like Las Vegas) may see higher prices during the coming real estate bubble deflation. The worst-case scenario for cities receiving the influx of those moving from elsewhere would be that property values would remain steady.

Juxtaposed to this phenomenon, larger cities are seeing an increase in available real estate, causing supply to outpace demand. As a result, prices are already dipping lower in cities seeing a mass exodus.

Are You in a Growing or Shrinking Real Estate Market?

The lesson here is that in order to make logical real estate market predictions for your home market, determine whether you are in an area where people are moving to or from. For example, if you live in Phoenix, Arizona, you are probably in a strong market that is attracting Californians. As a result, prices will likely be stable or even positive in the near term.

Now, one other caveat to consider is the state of the economy currently. Unfortunately, unemployment rates are high the US. Higher unemployment rates are negative for home buyers and are typically seen as a harbinger for decreased demand. As a result, unemployment may cause a decline in home buying nationwide. But we still haven’t answered the question of where the best place to buy rental property might be. Let’s take a closer look at demographics.

Demographic Changes

In “The Demographic Cliff” by Harry Dent, it is noted that the baby boomer generation (“Boomers”), those born between approximately 1946-1964, are retiring now. As a result, these baby boomers will be down-sizing from larger homes to smaller homes and buying vacation homes.

Prior to the COVID-19 Pandemic people were already beginning to shift in where they lived and how they lived. Now, the changes in living patterns and demographics have been accelerated. In general, more people will move out of bigger cities and move to areas with less dense populations. For example, people are moving out of cities like Los Angeles and moving to places like Idaho. Obviously, buying in expanding markets like Idaho will be more likely to maximize your cash flow real estate.

Individuals are selling expensive homes and flats and buying more affordable properties to replace the high priced, big city real estate. Boomers are selling their large family homes and moving into smaller, more affordable homes.

Rental Properties

How to Invest in Real estate passive income

You may be wondering how the big real estate investors acquire so many properties in just a few years. Well, the secret to buying more investment properties is using the “BRRRR” strategy. So, what is BRRRR and how will it help in buying more investment houses?

The BRRRR Real Estate Strategy for Real Estate Passive Income

“BRRRR” stands for buy, rehab, rent, refinance and repeat. The BRRRR investment strategy has been very effective for successful real estate investors. It allows investors to build a portfolio of investment properties quickly. In addition, it requires using less personal capital. Let’s breakdown this step-wise process to understand the details and the order of this strategy.

Step 1: Buy Real Estate Investment Properties

Buy Undervalued Properties and Calculate Profitability Before Jumping In

Once you have determined that you want to focus on real estate passive income, such as apartments, duplexes or larger complexes, it’s time to buy. First, you will want to search for real estate passive income via undervalued or significantly discounted properties. Many investors credit their profit margins to buying investment houses at prices that are significantly below the potential market value.

Next, after screening properties, you must do some calculations. One calculation that can help determine whether the real estate passive income you have chosen is profitable is the After-Repair Value (ARV). This will tell you what the potential investment property is worth after it has been rehabbed. If the cost to rehab a home is too high, profitability can be an issue. In turn, this can jeopardize your BRRRR strategy.

Finally, you will want to conduct a rental analysis. A rental analysis is a process of determining how much rental income the property is capable of generating. You will use this value in your overall profitability calculation for the deal.

Some other considerations: Don’t forget to include costs such as closing costs, rehab costs and the amount of cash that you will put down for financing. Many investors expect to use 20% down for investment houses. Clearly the BRRRR method is a great way to create cash flow real estate.

Step 2: Rehab Investment Property

The next step in the BRRRR process is to begin repairing and renovating (rehabbing) the real estate passive income investment property. The object of the rehab is to quickly conduct repairs that will make the home appealing, safe and add value to the property. In addition, you want to rehab the property as quickly as possible. Furthermore, the quicker the process of rehab is complete, the quicker you can begin earning money from rental income.

Step 3: Rent Investment Property

After completion of the property rehab, it’s time to find a tenant for your property. A good tenant will consistently provide income (in the form of rent), creating cash flow real estate for your investment. Furthermore, a good renter will take care of your property and not allow it to be damaged. Carefully determine what the market rental rate is for your area. In turn, this will ensure that you quickly find a renter and the property doesn’t sit vacant for months. In addition, you will want to properly vet potential tenants to make sure you find renters who are the best fit.

Step 4: Refinance Your Investment Property

Challenges of Working with Lenders, Obtaining Financing and Economic Cycles

The third “R” in the BRRRR process is refinance. After rehabbing the property and finding a renter, you can begin to look for a lender. The refinancing process means you will be working with a bank to borrow money based upon the remaining equity in the property. However, there are several things to know about refinancing real estate.

First, banks typically only lend approximately 75% or less of the appraised value of the property in a cash-out refinance. The lender will consider your credit score when determining whether to lend money to you. In addition, you may need to demonstrate that the property is generating rental income and is legitimately appraised at the value you say it’s worth.

Dealing with banks can be a slow, frustrating process. Keep in mind that banks only lend money in situations where they feel that the money is secure. Furthermore, they don’t want to lose money or lend too much money out for an overvalued property. In addition, economic cycles can change factors such as interest rates and credit flow. For example, after the 2008 housing crisis, it was very difficult to obtain a loan from banks and the BRRRR method was not smooth.

Step 5: Repeat the Process

If everything lines up correctly, the BRRRR method will be a success. You will find an undervalued property, buy the property, rehab and rent it and then obtain financing that you can use to buy the next property. You can then repeat the process of acquiring investment houses. If the BRRRR method is successful, you will be generating a net profit each month.

Getting Started with Real Estate Passive Income

Buy Where There is Growth and Population Movement – The South and West United States

One rule that smart real estate investors use is to buy properties where populations are growing. Population growth and population movement tend to drive prices up in real estate markets. Basic economics tells us that when there are more people demanding housing, supply cannot keep up with demand. As a result, prices go up, which is good for landlords. This is how cash flow real estate is generated.

For many years, there has been growth in the South and Western United States. For example, a United States Census Bureau 2019 Article states that of the 15 cities in the US with the most growth, eight of them were in the South, six were in the West and one in the Midwest. Popular cities include places like Phoenix, Arizona, San Antonio, Texas and Jacksonville, Florida.

Cash Flow Real Estate Wrap Up

Hopefully this article has helped you understand real estate passive income and how to generate cash flow real estate. Buying real estate to generate passive income as an investment can be a great opportunity for generating wealth for many years. Using the BRRRR method for acquiring investment properties is a proven strategy for success in generating passive income. In addition, real estate may be a safer investment right now compared with other options.

Read More:

Housing Market Crash of 2021

Best Place to Buy Rental Property

Why Saving Money is Important

Investment Houses

10 Things to Know Before Starting a Budget

Value Investing Books

Home Buying Power

Real Estate Market Predictions

Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

 

Categories
Investing

How Much Money Can You Make Trading Options?

In this article we discuss how much money can you make trading options, as well as what options are, their purposes, how options are traded and the risks. We will also define some other terms like calls and puts and provide some real examples of how much money can you make trading options.

Trading Options Definition

With no Requirement to Buy or Sell, Options are Derivative Contracts Traded on a Limited Time Basis

“Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.” Investopedia

Although the price of the option is based upon stock value, the option is a contract that is not directly linked to the stock value in the market. Additionally, options are considered derivative investments. Moreover, the option does not represent ownership of stocks or assets until the agreement is finalized.

Equally important, options are commonly traded in denominations of 100 shares of a company. The options contract will be written in a way that allows the buyer or seller to lock in a buy/sell price at some point in the future. However, it’s important to note that when the contract expires at the end of its expiration date, it is worthless. In our discussion of how much money can you make trading options, we will attempt to clarify some of the mysteries of stock options trading.How Much Money Can You Make Trading Options

Types of Options Contracts: Call and Put

First, when considering how much money can you make trading options, it is important to understand calls and puts. There are two types of options: call options and put options. A call option, also known as an exercise price or strike price, is a contract that determines what price at which the buyer can purchase the option in the future. In contrast, a put option is a contract that determines what price at which the buyer can sell the option in the future.

In addition, call and put options contracts can expire along different time frames. The expiration time frames for contracts can vary from weekly, monthly or several months. Obviously, the longer the length of a contract, the more it costs per stock. Contracts are usually denominated in lots of 100 shares.

Call Option Example

A Call Option is Exercised for a $1,500 Profit

As an example, let’s assume that Tesla is trading at $400 per share. In some cases, the options price will be quoted per stock over a 30-day period. For example, call options might be priced at $5 per share of stock (premium). In this case, the options contract would be $500 (100 shares X $5 per share = $500 contract).

Let’s say that you anticipate the price of Tesla rising to $420. On day 21 of the contract, Tesla meets your expectations and rises to $420. You then exercise your contract and your profit from the trade is $1,500. The math is demonstrated below.

420-$400 = $20 per share increase in value

$420 – ($400 strike price + $5 premium) = $15 realized (nominal) per share profit

$15 per share profit X 100 shares = $1,500 profit

Note: this is a simplified example using estimates to help you easily understand how much money can you make trading options. There may be other fees/costs involved, such as brokerage fees.

Why Use Options Trading

When thinking about how much money can you make trading options, you should understand why we use options trading. Options trading has traditionally been used by Wall Street traders as a hedge against risk. Options contracts can be used as a kind of insurance to counter balance a trader’s portfolio.

History of Options

Options trading has not been around for very long, compared to the history of the New York Stock Exchange. According to Optiontradingpedia.com, options trading began at the Chicago Board of Options Exchange (CBOE) in 1973. Yet, the New York Stock Exchange was founded in 1792 in New York City.

With the continued movement for deregulation of the financial industry in the past 25 years, options trading has become more popular with retail traders.

Difference Between Options and Futures

Options Contracts Require no Action Upon Expiration; Futures Contracts Require Traders to Buy or Sell Upon Expiration

The primary difference between options contracts and futures contracts is that with options contracts the trader is not required to buy or sell at any time. The trader simply has the “option” to buy or sell shares in a stock. Whereas, futures contracts require the buyer to buy shares of a stock and the seller to sell shares of a stock upon expiration of the contract.

Both Options and Futures can be used to hedge against risk incurred in a portfolio of investments. For example, if you have a portfolio of tech stocks that are considered long investments, then you might purchase options to hedge against a price collapse of the holdings.

The Risks of Option Trading

Option Trades Can Be Highly Volatile and Are Not Recommended for New Investors  

It’s important to understand that trading options is inherently risky. Unlike purchasing assets like stocks or bonds, options contracts are short term derivative instruments that have no real value. In addition, the contract expires in a matter of weeks or months. If the options contract expires and is not exercised, it is worthless.

Legendary investor Peter Lynch of Fidelity Investments had this to say regarding options trading:

“I know that the large potential return is attractive to many small investors who are dissatisfied with getting rich slow. Instead, they opt for getting poor quick. That’s because an option is a contract that’s only good for a month or two, and unlike most stocks, it regularly expires worthless – after which the options player must buy another option, only to lose 100 percent of his or her money once again.” -Peter Lynch of Fidelity Investments, Once Upon a Time on Wall Street

In case you didn’t follow that quote, Peter Lynch is not a fan of options trading.

Options Trading Tragedy

In June 2020, a 20-year-old student named Alexander Kearns who used the Robinhood mobile app to trade options committed suicide. Apparently after entering a trade, Mr. Kearns saw a -$730,000 balance displayed on his account and believed that he had lost a great deal of money. It is believed that he took his own life as a result of the confusion. As a result, Robinhood has allegedly made modifications to the trading app to prevent future confusion among traders.

Investment Wisdom

Thinking and planning for the future are noble activities that we encourage at Piggy Bank Coins. Every adult should learn to budget, save money and invest at some time in their life. If you have a family, it is critical that you begin planning your financial future.

Despite its growing popularity, learning how much money can you make trading options is not recommended for most investors. We recommend a more fiscally conservative approach of slow, incremental saving and wealth building. Read more about what Piggy Bank Coins recommends at the links below.

Learn More About Making Money Using Option Trades

Hopefully our discussion and explanation of how much money can you make trading options has helped you understand options. If you are truly determined to learn more about how much money can you make trading options, check out the book “Trading Options for Dummies” or read more about options trading on this website.

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We do not endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.