Video Chapters
00:00 Intro
00:23 Where do returns come from in real estate?
01:11 Let’s Talk About Long Term Investments
02: 19 Short Term Investments
03:24 Flipping or Rehabbing Property to Resell
04:24 Other Income

A video by Joshua C. Smith, REALTOR

Brokered by eXp Realty, LLC | Home Agent Group
Direct. 615 235 3410
Office. 888 519 5113 x1037
Tennessee: Lic # 352009 | Alabama: Lic # 000151202

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I met Brad Lea a couple years ago. In true fashion, when talking about real estate, he asked me, “how do I make a 10% return on a real estate investment?” If you know the man you know he’s done well for himself, and it’s no shock to me that he would ask such a simple and straightforward question. It’s the mark of smart people.

So let’s talk about that, what is the best way to make 10% returns on your real estate investments? Baseline – where do returns, or specifically, “profits” come from in real estate? Obviously, rent is the most straightforward and reliable way to monetize your property. But you also make money on your assets in equity if you hold them, as value grows. Clearly, you can make money in real estate sales as a property owner, a broker, or as a wholesaler, or a “Flipper” by rehabbing and reselling property. But you already know this much, so let’s break these down a bit further. These are just a few ways you can manage the investment of real estate to gain the types of returns you’re looking for.

I’m not a financial advisor, this is just practical knowledge you gain as you make mistakes. Every investor I know has made a few of those, myself included.

First, Let’s Talk About Long Term Investments.
Debt is your best friend to acquire a lot, but how do you make money if all your assets are tied up in other people’s money? This is the beauty of real estate. Property in areas where there is job growth, residential and commercial expansion, a healthy economy, that’s where you will spend the most, but make the highest returns in equity, long term. The value of that property will grow. Even in our slowest years, the Nashville market averages 3 or 4% growth in value. During those boom years of 2020, 2021, 2022, most of the Nashville market grew over 30% in value. If you invest in a healthy market, your assets can grow in value, more reliably. This for me is the starting point of getting to that 10% return. Obviously, if you’re value is growing, even with high debt, if you make smart purchases, you can roll that debt over and hopefully rates will come down and value will go up, and you can refi your debt to get lower monthly payments and increase your income, or you can leverage that equity for more purchases down the road. Value is flexibility.

Next is Short Term Investments.
Are you interested short-term cash flow? Many people think short-term rentals are the best way to make a lot of cash quickly and easily. Short term rentals can make you more money than long-term rentals, yes, but it doesn’t mean that they are minimal risk. Your barrier to entry in any Nashville market that will gain you a high cash return is north of $700,000 purchase price. Short term rentals also require quite a bit of management in order to be successful, without a good manager a short term rental can put you underwater very quickly. In fact, any quick return on investment holds high-risk, flat out, end of sentence, I don’t care what anybody tells you. In fact, no investment is a “sure thing”. It doesn’t mean it’s not worth it to take the risk, but educate yourself, as you are. But it would also be good to make fair risk investments, building up to higher risk investments, if you plan to get into any quick cash return investments of any kind.

Finally, Flipping or Rehabbing Property to Resell.
This requires experience so if you don’t have any, it will require partnership. But a 10% return is feasible, and often likely in this scenario, depending on how you structure the backend of these deals with your partners. Those partners can also make or break the deal. So, know who you’re working with and how much experience they have. Flipping is not without risk, I would say it’s equitable to any risk you make take in any other short term investment, so this is not a method I recommend for people that are limited in the time and resources it takes to make this business model work. You need to know the market, you need to be able to underwrite a sale and make the numbers work, and you have to be able to see it through to the completion and sale. Circling back around, you can also flip and hold a property for long term investment purposes. This could turn a 6 month plan into a 2 year plan and help offset some initial costs and mitigate some that risk we talked about.

Other Sales.
As a property owner, you will make whatever equity you can net from a sale. But you can also contract property “for sale” as a wholesaler and flip those to other investors or agents. And you can also get a real estate license and learn the ins and outs of how all of this works. If you have a license, and haven’t learned this much already, you should call me, I’m looking to expand my team. If you are thinking about getting a license, same thing applies. Exp is a good spot for benefits and creative ways to make some passive income.

But hey, if you like the sound of all this, and just don’t want to put this much thought into it, that’s ok too. If you’re looking for partners, investors, I’m just a phone call away and happy to help you through to the finish line as an agent, possibly as a partner or investor myself, or I probably know a couple people that are looking.

Hope this helps, see you again soon.