A quick summary
Investing in real estate can be a very successful endeavour, however some real estate investors have landed themselves in hot water. If you’re about to begin your journey into real estate, you might be wondering just how successful you could be, or even, could you become a millionaire from real estate?
Table of Contents
Word on the street is that you can become a millionaire by investing in real estate. If you’ve ever heard the famous statistic that 90% of all millionaires have become so through real estate, you may be wondering how true that is. Well, we’ve got some good news for you! If you’re thinking about investing in real estate or you already do, to build up wealth and create financial freedom for yourself, we’re here to answer the question, can you become a millionaire from real estate?
Can you become a millionaire from real estate?
The short answer is… yes! You absolutely can become a millionaire by investing in real estate. The trick is to follow the right path to get there, or you could land up with an empty bank account and a property that you can’t get rid of. One of the most attractive qualities of the real estate industry is that anyone can get into it, and real estate is a tangible asset that is constantly appreciating in value.
There are different strategies that you can use to generate wealth from real estate and each strategy has its own benefits. However, there are 4 wealth generators that apply to all spheres of real estate investors in some way. These are:
- Cash flow: This is the amount of money you’ll be making and spending each month on your real estate investment. It varies based on factors like repairs, and different costs in different states.
- Equity: When you take a loan out on a property, you’re putting money into the loan every month to pay off the property and therefore building up equity in it. So, once you’ve finished paying it off, the entire value of the property is yours.
- Tax savings: There are tax benefits to owning property and this includes lower taxes, property and mortgage deductions, depreciation and more.
- Appreciation: Real estate usually appreciates in value over time, and this bodes well for investors as the asset increases in value, even while it’s being paid off.
Do most millionaires come from real estate?
About 90% of the world’s millionaires over the last 2 centuries have come from real estate. So that’s a resounding yes! For many investors, real estate offers a great opportunity to build wealth and create a large profit on each deal. The sooner real estate investors begin, the better, so that they can begin building wealth. How do they do it? Let’s take a look at how to start investing in real estate and begin working towards your financial goals.
How to become a millionaire in real estate
Once you’ve decided that you’d like to enter the exciting and lucrative world of real estate, there are a few strategies that you can choose from. But first, it’s important to learn everything you can about real estate investing, how taxes work, how to manage a property and how to get financing.
Once you’ve learnt all about real estate investing it’s time to set goals and plan a road map to achieve your goals. It’s a good idea to break your goal into achievable milestones so that you can set your sights on these while you work towards the bigger picture, which, for many people, is financial freedom. As part of your goal setting, you should develop a business plan, because real estate investing is a business.
As part of this plan, you’ll need to pick a strategy. You can use various strategies, however starting with one is a good idea, and then once you are comfortable with that strategy you can try another one. Here are a few strategies that you could consider.
Strategy 1: Flipping Houses
Flipping houses involves buying a house, renovating it to increase the value as quickly as possible, and then selling it to make a profit. It’s a short-term strategy that you can use to make money and it’s not a passive strategy. Once you’ve gotten into the swing of things, you should develop your own process for flipping houses the most efficient and affordable way.
You can find houses to flip on real estate websites, look for distressed properties and so on. FlipScout by New Silver is a great way to find a good investment property because, not only does it cost nothing, but it also shows insights on each property that will help you decide if it’s a good deal or not. Flipping houses usually takes a few months and according to ATTOM Data Solutions, in the second quarter of 2020, the average flip netted the seller a gross profit of $67,902, and a return of 41.3%
Strategy 2: Rental Property Investing
Investors who choose the rental property route can enjoy passive income from the rental payments every month, while their asset appreciates in value as they pay it off. The rental payments will often cover the loan and so the asset will be paying itself off over time. Once it’s paid off, almost all your passive income from the property becomes profit.
The beauty of investing in rental property is that a property management company can manage the day-to-day operations for you, from tenant screening to property maintenance. One of the most important considerations when it comes to rental properties is charging a fair amount for rent, otherwise your property could sit vacant for months and you’ll lose out on any income at all.
Strategy 3: Commercial Real Estate Investing
Much like residential real estate investing, those who decide to invest in commercial real estate can enjoy a passive investing journey. Once the property is bought, there are usually long-term leases signed by businesses, and a property management company will take over the management of the property. The types of commercial properties that you can purchase are offices, multi-family buildings, retail spaces, industrial properties and special purpose properties.
The advantage to commercial real estate investing is that you can gain multiple streams of income, and while your initial investment is higher, you can also earn more. Typically, new investors won’t start out with commercial property but instead invest in residential property and move to commercial property later in their journey.
Strategy 4: Buy and Hold
The underlying principle behind this strategy is simple. Real estate appreciates in value over time, so buying a property and holding onto it means that you own an appreciating asset that will make you more money in the long run. To maximise this, you can rent out the property to help you pay off your loan. Investors can use the buy and hold strategy for any property type however, it is a long-term strategy and not a quick money-maker.
The buy and hold strategy also involves rehabbing a property, which means renovating it to increase the value of the property. Make sure to consider the cap rate, to figure out how long it will take to make your money back on the property. This, along with the cash-on-cash return figure are important when you’re considering which type of property to buy.
Strategy 5: Wholesaling
Wholesaling is an active form of real estate investing where you’ll find a good property deal, assign a contract to it without having to purchase the property itself, and then sell this contract to a buyer. The benefit of this strategy is that you don’t need to find the funds to purchase the property yourself, and you simply need to connect a buyer and a seller and take a profit from that.
To find the right kind of property to wholesale, you’ll need to find one that is selling for below market value. You can then create a contract that gives you the right to sell the property. This short-term investing strategy allows you to make money from the sale of the property without having to take ownership of it and pour capital into a property rehab.
How long does it take to become a real estate millionaire?
The length of time that it takes from your initial investment to becoming a millionaire differs vastly depending on how much money you have invested, which strategy you’re using and how long you’ve been investing for. Longer term strategies can take a lifetime to build up, and short-term strategies can be anywhere from a few years, to much more. It’s difficult to give an exact timeline as each investor’s portfolio is different and will take a different length of time. Essentially the sooner you invest, the better, so you can begin generating wealth.
The biggest obstacles preventing people from investing in real estate
- Lack of knowledge: Starting out in real estate can be daunting for people who don’t know a lot about it. It’s important to educate yourself first about the different types of investment properties and strategies, along with the legal and financial elements.
- Getting finance: People who are self-employed or investing for the first time can struggle to get a loan from the bank. So, keep your credit score up and consider other options if you don’t qualify with a bank, for example hard money loans.
- Finding investment properties: Beginner investors can struggle to find investment properties due to a lack of resources and knowledge. The way to get around this is to broaden your search to include a variety of platforms, many of which can be found online.
- Rental property management: Real estate investors who are buying a rental property for the first time can be put off by their lack of expertise around being a landlord. Managing a rental property is time consuming and costs money. Thankfully, there are property managers to guide investors and take over the property management.
- Time: Many new investors struggle to find the time for everything that comes with real estate investing. Such as the paperwork, finding a property, managing the property and so on. The key here is to break then time into increments each day and get help where possible to alleviate the stress.
Final Thoughts
Building wealth from real estate is one of the most common and most likely ways to reach your financial goals. However, you’ll get out what you put in. Which means that you’ll need to educate yourself first, pick the right strategy to suit your needs, and make sure that you put in the time and effort that is required to make a success of it.