Whether you are interested in real estate’s investment potential or just exploring new ways to diversify your portfolio, it’s worth looking into how real estate helps investors build wealth.

As you may already know, real estate investing is all about acquiring, owning, managing, renting, or selling real estate. Just like other investments, the purpose here is to generate returns.

What makes investing in real estate unique and interesting is the fact that there are many ways to participate. Investors can purchase physical properties, invest in real estate investment trusts (REITs), or participate in private placement funds. There are also various property types, including residential real estate, commercial real estate, and industrial real estate. Investors can find a strategy and property type that suits their financial goals and investment preferences.

Some novice investors jump into real estate expecting to turn a profit quickly. However, successful real estate investing requires careful analysis of market trends, property values, and potential risks. Remember that no investment is without risk. [1]

Investing remains a popular avenue for wealth creation, offering the potential for long-term returns if you know what you are doing. Below are some ways investors can profit from real estate.

APPRECIATION

Real estate investors can generate profits through appreciation. This refers to the increase in a property’s value over time, a common phenomenon among real estate properties. Active investors could profit from selling the property at a higher value than they originally paid for it. However, appreciation is not guaranteed and depends on various market factors. [1]

Property appreciation can occur in two primary forms: natural (market) and forced appreciation.

Natural appreciation is driven by external factors, including economic growth, increased demand for real estate in a particular area, inflation, infrastructure development, and more. All of these factors can contribute to a rise in property values and similar assets. On the other hand, forced appreciation is primarily within the property owner’s control and involves enhancing the property’s value through strategic renovations, improvements, or operational efficiencies.

Savvy investors can purchase real estate properties in up-and-coming neighborhoods so that they appreciate over the long term at a higher rate. Because of this, some people consider appreciation a one-time payout for a long-term investment. [1]

By carefully selecting, improving, and maintaining properties in areas with high growth potential, real estate owners and operators (active investors) can position themselves to benefit from appreciation. Under their success, investors can also reap the benefits of appreciation.

RENTAL INCOME

Real estate can potentially be a consistent source of cash flow. Depending on the type of investment, it can even be a source of passive income. The level of involvement ultimately depends on the investment strategy (active vs. passive investing), but passive income is primarily generated through rent paid by residents or tenants. [1]

Real estate owners and operators generate rental income by acquiring properties and leasing them to residents or tenants. For your edification, “tenant” is the correct term for specific property lease agreements, such as office, industrial, and retail. In contrast, “resident” is the preferred term for persons taking up residence or living on a property. So, someone renting a self-storage unit may be referred to as a tenant, while someone who lives in an apartment community is referred to as a resident. Monthly rent paid by residents serves as the primary revenue source for the apartment community model. In exchange, residents earn the right to occupy space within the property.

The amount of rental income is typically determined by factors such as the property’s occupancy and delinquency rates, location, size, amenities, and market demand for similar properties. Well-located rental properties with attractive amenities can generate higher rental income.

Remember that, if you choose the active investor path, this approach means you will be playing the role of landlord. So, you are responsible for collecting rent and managing the day-to-day operations of the rental property. While this can be a source of income, it is not a passive investment as it requires much time, energy, and physical labor. [1]

Successful active investors might strategically choose apartment communities in high-demand areas and set competitive rental rates to attract and retain residents. Consistent rental income could ultimately contribute to the property’s return on investment (ROI).

Additionally, active investors frequently aim to enhance rental income over time by upgrading the property or adjusting rental rates in response to market conditions.

FIX & FLIP

Some active investors earn a profit from real estate by utilizing the popular fix-and-flip strategy. This is when an individual purchases distressed properties, renovates or “fixes” them, and then sells them quickly for a profit.

Fixing properties means adding value to them through renovations and improvements. By making upgrades that appeal to potential buyers, active investors can significantly increase the property’s market value.

Property owners can enhance the appeal of a property by adding features such as modern kitchens, updated bathrooms, and other desirable amenities.

This strategy aims to sell at a higher price than the cost of purchase. Run-down or outdated properties can be bought relatively cheaply for the local market. Renovations and repairs make the properties more attractive, increasing their likelihood of selling for a higher price. [1]

While this may sound like an “easy” and lucrative strategy on paper, it is only possible if you understand the fix-and-flip process and know how to make repairs and do renovations on your own or in partnership with contractors that you know and trust. Active investors must also be knowledgeable enough to calculate the property’s value, the cost of renovations, and its post-renovation value. They must have a keen understanding of their local real estate market and the general economy. Timing is crucial in this strategy, as holding the property for an extended period can erode potential profits due to carrying costs, such as mortgage payments, property taxes, and maintenance expenses.

If done appropriately, active investing could lead to significant profits. It helps to have diligent underwriting and good relationships with established contractors who can help estimate costs and make repairs at a reasonable price. [1]

WHOLESALING

Active real estate investors can generate income through wholesaling by acting as intermediaries in property transactions.

Similar to the fix-and-flip approach, wholesaling involves finding distressed or undervalued properties. However, instead of renovating and adding value to them, the active investor or property owner negotiates favorable purchase agreements with sellers and then sells those contracts to other investors or buyers at a higher price. The contract spells out the amount the wholesaler will sell the property for. [2]

The price difference is known as the wholesale fee and can be 5% to 10% of the property’s price.

Wholesalers often possess strong negotiation skills, a keen eye for market trends, and an extensive network of buyers; however, they may require a real estate license, depending on local laws. This strategy is typically attractive to buyers or investors with limited capital, as it can require minimal upfront investment and may allow for a quick turnaround.

REAL ESTATE INVESTMENT TRUSTS (REITS)

Real estate investment trusts (REITs) may be suitable for passive investors seeking a hands-off approach to real estate investing. Acting like mutual funds, REITs give investors the opportunity to earn money in real estate without directly owning or managing properties. [1]

A REIT is a corporation, trust, or association that directly invests in income-producing real estate, offering a more accessible entry point for those with limited funds. REITs can own, operate, or finance income-generating real estate. Individuals can then invest in publicly traded REITs (except for non-traded or private REITs with different requirements). [1]

Passive real estate investors receive dividends from the rental income and capital gains (if any, and when the property is sold) of the real estate properties held by the trust. It can be a consistent source of income for investors. Additionally, the value of the REIT shares can appreciate over time, allowing passive investors to also profit from appreciation when they sell their shares. REITs also offer diversification. By investing in real estate through REITs, investors can spread their risk across different real estate assets.

It’s important to remember that investing in a REIT means you are simply buying shares in an investment. So, you do not own the real estate properties purchased by the REIT. Instead, you own shares in the entity that owns those assets.

SHORT-TERM RENTALS

Short-term real estate rentals have become very popular in recent years, and investors could potentially capitalize on this lucrative market to generate substantial income.

Active real estate investors can tap into the growing demand for temporary accommodations like vacation homes by strategically acquiring properties in desirable locations. These short-term rentals are fueled by tourism, business travel, and transitory housing needs.

Platforms like Airbnb and Vrbo have revolutionized the way travelers find lodging. This opens up a new and dynamic platform for active investors. They can showcase their properties online and attract more guests or renters.

The key to success often lies in optimizing occupancy and nightly rates, adapting to changes in seasonal demand, and ensuring a positive guest experience. Active investors should take care of the investment property and consider adding amenities to enhance the property’s appeal. This can even help command higher prices.

Remember that despite their popularity, short-term rentals are not welcome in every city or town. Some places prohibit rentals of less than 30 days unless the resident stays in the property along with the guest. Other areas may require property owners to register their short-term rentals and pay a corresponding fee. [3] Investors must fully understand and comply with local short-term rental regulations, as these can materially impact the feasibility of this investment approach.

As the short-term rental market evolves, savvy investors must learn how to navigate these new waters to reap returns.

TAX BENEFITS

Real estate owners can also leverage various tax benefits to enhance their ROI. One way this could be achieved is through depreciation.

Depreciation is the incremental loss of an asset’s value, generally due to deterioration or obsolescence (assumed wear and tear). This allows property owners to deduct a portion of the property’s cost over its useful life (27.5 years for residential and 39 years for commercial properties). This non-cash expense could provide an annual tax shield, lowering taxable income and potentially reducing the amount of taxes owed in the short term. [4]

Additionally, owners can benefit from interest deductions on mortgage loans, significantly reducing taxable income. Real estate professionals who actively manage their properties may even qualify for special tax treatment, such as deducting real estate losses against other income.

These tax advantages tend to make real estate an attractive investment option for many investors.

COMMERCIAL REAL ESTATE

Commercial property is any real estate used for business purposes, such as generating income or providing workspace. This may include industrial and retail establishments, such as shopping malls, warehouses, and manufacturing sites. [1] Apartments are considered commercial multifamily properties if they have five or more housing units. Other property types, including duplexes and townhomes, are regarded as residential multifamily.

Like residential real estate properties, commercial properties can generate rental income by being leased to individuals, entities, or businesses. Rental agreements for commercial properties typically involve long-term conditions, providing a potentially steady and predictable income stream. Commercial real estate owners can also benefit from property appreciation.

Other investors may take a different approach, engaging in property development and redevelopment, to sell their commercial properties for a profit. There are many ways to leverage commercial real estate to generate income and build wealth. Active real estate investors can choose which one suits their investment needs.

MULTIFAMILY PRIVATE PLACEMENT

Similar to a REIT, real estate private placement allows you to engage in real estate investing without becoming a landlord and taking on all the responsibilities that go with that title.

Private placement, also known as syndication, is a real estate deal in which multiple investors pool their funds to purchase a property, typically an apartment building.

Multifamily private placement is a popular type of private placement deal for two reasons: multifamily properties are typically larger and more challenging to acquire for a lone investor, and it can be more difficult to manage a large real estate property by yourself. Multifamily private placement makes it possible to invest passively.

The real estate owner/operator, syndicator, or general partner takes on the responsibilities of the investment. They are responsible for underwriting the deal, conducting due diligence on the property, arranging the financing, developing and executing the business plan, and collaborating with investors who wish to participate. Once the acquisition is complete, they oversee all aspects of property management. They will form a legal entity, often a limited liability company (LLC) or a limited partnership, where passive investors become shareholders or limited partners (LPs). [5]

The passive investor’s role is limited to providing a portion of the capital needed to acquire the property. In exchange, they generally own shares in the entity that owns the property, proportional to their contribution. This is a true passive real estate investment, as passive investors have no responsibilities beyond their capital contribution and associated fees.

Apartment buildings are known for their cash flow, which is another reason why this type of investment (multifamily real estate) is so popular. The cash flow is not entirely disrupted even if one or two residents leave.

Passive investors may earn a share of the equity upon resale, depending on the deal structure. Each deal is different, and investors must carefully analyze the private placement agreement or memorandum (PPM) before agreeing to participate.

Keep in mind that most private placement deals are exclusive to accredited investors. If you are an accredited investor looking for a passive real estate investment, consider a multifamily private placement deal.

WORK WITH BAM CAPITAL FOR MULTIFAMILY PRIVATE PLACEMENT DEALS

Successful real estate investing often involves careful research, market analysis, and a solid understanding of economic cycles. Managing risk and having a clear exit strategy are crucial aspects of a strategic real estate investment.

So, to answer the question, it is possible to make money in real estate by buying houses, or even other types of commercial properties. There are many potential ways to achieve this goal.

But if you are an accredited investor looking for a hands-off investment in real estate, multifamily private placement could be the ideal choice. Since the sponsor will handle all the decisions, it is essential to do your due diligence and find a trustworthy sponsor.

One of the attractive things about multifamily private placement that sets it apart from REITs is that you can choose to participate based on the product that is being offered. And if you are an accredited investor looking for multifamily real estate private placement deals in the Midwest, consider working with BAM Capital.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units. [6]

Remember that no investment is without risk. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect BAM Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. BAM Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 BAM Capital. All rights reserved.

SOURCES:

[1]: Harvard Division of Continuing Education. (2024). “Real Estate Investing for Beginners: 5 Skills of Successful Investors.” https://professional.dce.harvard.edu/blog/real-estate-investing-for-beginners-5-skills-of-successful-investors/

[2]: Investopedia. (2024). “What Is Real Estate Wholesaling? How It Works, Example, and Strategies.” https://www.investopedia.com/ask/answers/100214/what-goal-real-estate-wholesaling.asp#

[3]: J.P.Morgan. (2022). “What to look for when buying a multifamily property.” https://www.jpmorgan.com/insights/real-estate/investing/what-to-know-when-investing-in-short-term-rentals

[4]: Rocket Mortgage. (2024). “Top 6 Tax Benefits Of Real Estate Investing.” https://www.rocketmortgage.com/learn/tax-benefits-of-real-estate-investing

[5]: Multifamily Refinance. (2023). “Multifamily Syndication: The Complete Guide.” https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[6]: BAM Capital. (2025). “Current portfolio.” https://bamcapital.com/