Real Estate Investor Salary Guide
You’re thinking of entering the real estate game, a decision that could have life-changing consequences.
If all goes according to plan, you could potentially generate a steady monthly cash flow and increase your net worth. At the same time, your real estate investment could also go pear-shaped, putting you in the nightmarish situation of dealing with a cash-burning property.
So, how much can you actually earn as a real estate investor? Recent estimates show that the average real estate investor salary is around $124,000 each year. But you can’t just snap your finger to make that happen. The amount you earn or lose varies on a range of factors.
To earn even a single dollar of profit, the first step is to do your due diligence and create a sound financial plan.
How much money do real estate investors need to make money?
Real estate is expensive. This holds true whether you’re looking to flip single-family homes, rent them out, or invest in commercial real estate.
Here are some of the basic costs to consider when buying real estate.
Down payment and closing costs
When buying a property, you’re most likely going to need to take out a mortgage loan from the bank or another lender.
The amount you need to put down on a property varies depending on the property type, sale price, and the type of loan you secure. Expect at least a 20% down payment on an investment property, plus another 2% to 5% in closing costs (agent fees, inspections, appraisals, and insurance, to name a few).
You may be able to roll closing costs into the cost of a mortgage, but you’ll wind up paying more over the course of the loan… with interest. In general, it’s always good to have an extra $10,000 to $15,000 on hand to cover last-minute fees.
Monthly mortgage payments or HOA fees
Once you own a property, you need to make monthly mortgage payments that can vary significantly depending on the property. You can expect to pay anywhere from $1,200 to $3,000 or more.
If you buy a condo or apartment, you may have to come up with hundreds of extra dollars per month for homeowners association (HOA) fees, which go toward facilities, operations, and maintenance costs.
Maintenance and repairs
All properties require maintenance, especially if you’re actively renting to tenants. You may be able to write off some large-scale expenses with depreciation credits, but you can also expect to pay for a lot out of pocket on small upgrades and repairs.
Often, investors opt to pay a third-party property manager to oversee leasing and day-to-day operations. This can cost hundreds or thousands each month, depending on whether you have a small place or a large one that requires a lot of extra work.
Further costs can arise when selling an investment property. You may have to make capital upgrades or repairs before putting the house on the market.
This is especially common when flipping properties. Investors commonly need to put work into a property to get it to a point where they can sell it for a profit. The last thing you want to do is purchase a property and then have no money to pump back into it.
Real estate investor salary: An overview
Now that you have an idea of the basic costs associated with real estate investing, let’s explore how much you can make in this trade.
For starters, your earning potential varies depending on where you live. According to a recent estimate from ZipRecruiter, the national average is around $124,000. Top earners can make closer to $200,000 each year, while lower earners earn closer to $100,000.
It’s safe to say that this is a decent annual income regardless of where you live. But you need to have the right plan in place. In many cases, it takes multiple types of real estate investments for the annual profits to breach the six-figure mark.
Top real estate investor strategies
Hold and rent
If you’re looking to bring in passive income—aka effort-free money—one way to do it is to purchase residential real estate and rent it to tenants. You can rent on a short-term or long-term basis, depending on the type of place and the location.
Many people who take this approach start out by working a full-time job and using the money they bring in from real estate to pay down their mortgage. You most likely won’t start bringing in serious revenue until your mortgage goes away. But once your mortgage is paid off, you can easily bring in a few thousand in profits each month from each property you own.
Another way to invest in real estate and earn passive income is to put your money into real estate investment trusts (REITs). This involves buying shares of publicly traded companies that own and operate income-producing real estate.
The annual return you can earn from the top REITs can vary from around 2% to about 10%. With that said, if you put in a substantial amount of money into REITs, you could produce a decent annual salary. Looking at those numbers, a REIT investment of $100,000 can yield between $2,000 and $10,000 annually. The more you invest, the more you can earn. But you can also lose money.
Buy and flip
Flipping houses involves purchasing properties at low prices (ideally, below market value), restoring them, and then selling them above market value.
This can be an expensive and risky strategy, and it isn’t easy to pull off. But it’s not impossible.
First, you have to find a good deal and secure it at the right price. You then need to be smart about making capital upgrades so you don’t go over budget.
Keep in mind that real estate commission fees, unfavorable market conditions, and unforeseen repair costs can wipe out profits. If you can keep those variables in check, you might walk away with a solid 10%, 20%, or more return on your investment.
Most people who buy and flip houses don’t make salaries. Instead, they make money for each project. Let’s say you buy a bargain house for $150,000 and sell it for $200,000. You then and you do that three times in a year.
By the end of the year, you might walk away with $150,000 in profits before taxes. You’ll almost certainly have to work harder than most to make those numbers a reality… and you could still lose money.
Tips for making money with real estate investing
Don’t quit your day job until you’re truly ready
As they say: Don’t quit your day job. Real estate requires a steady cash flow, and if you’re getting it from your full-time job, there’s no reason to disrupt that. It can take years of hard work, and often, years of losses to make it to the top. So don’t rush the process, or you could wind up in a tough situation.
What’s more, a lender will want to see steady proof of income before giving you a loan. Simply put, quitting your day job might make it harder to secure the funding you need to buy a property.
It’s also important to be highly selective about the properties you purchase. Take your time and rely on the guidance of experts to help you make the right decisions.
Just because a property seems like a guaranteed money-maker, it doesn’t mean that it will be. The best investments are often the ones that you don’t make!
Location is key with rental property
Location is absolutely imperative for success when looking for a rental property.
Let’s say you find a stellar unit at a great price. If it’s in the wrong part of town, you may have a very hard time renting it out. In many cases, you’re better paying more for a prime location because you’re less likely to have difficulty occupying or offloading the property.
Get a great agent
Finding a great realtor is half the battle. Avoid working with a friend or relative just because they’re in the industry. Only go with the top performers to increase your chances of success.
Ask your personal network to see if they can recommend someone awesome. If you already know successful real estate investors, ask for their opinion on which agent(s) they recommend.
You should also look for specialty agents for buying and selling. Often, agents excel in either one area or the other. It’s somewhat rare to find a pro at both buying and selling.
Lean on REITs
When you start out in the real estate market, you’ll be challenged on several fronts: managing your property, keeping your clients and tenants happy, and assessing larger market conditions and trends. Real estate investing can be a full-time job, making it very difficult for someone with another full-time job.
Consider testing the waters with investments in REITs and learning the market from the ground up. Invest slowly and track the market over a few months or years. Try to increase your bottom line by making wise investments.
Then, when you’re ready, look into supplementing your investment by purchasing a direct property. You’ll have a better understanding of how the market works, decreasing your chances of making a bad investment.
Frequently Asked Questions
What’s the average real estate investor salary?
Recent estimates put the average salary around $124,000 annually. But remember that as a real estate investor, you won’t make a fixed salary. Your money is going to come from the individual investments you make, and you can also lose money (meaning you have a negative salary).
If you play your cards right, you can earn a steady cash flow and make large gains when selling properties.
Do I need a real estate agent?
A thousand times yes! Having a real estate agent is a very smart move and generally worth every dollar you’ll pay in commissions and fees.
Real estate agents can provide expert knowledge of the local market. A realtor can also help you maximize rental income and save money on costs that you might not otherwise consider.
Can you do real estate on a part-time basis?
Most beginners start off investing in real estate on a part-time basis. Eventually, you might make enough in residual earnings from rental properties and REITs that you can live full-time off your investments. However, it’s going to take some time to get to that point.
To make it easier while working a separate job, consider hiring a property management company to handle operations.
The Bottom Line
Investing in real estate isn’t something you should rush into. It’s a major responsibility with serious financial repercussions.
Take your time and learn how the market works before diving in. By doing that, you’ll be much better off in the long run. When you’re ready, and when the right opportunity arises, don’t hesitate to pounce!