If real estate investing has been on your mind, you're likely wondering how to become a millionaire in real estate. The great thing about investing in real estate is that virtually anyone can start investing, and, with enough persistence, can build wealth without having to wait a lifetime for your savings to grow.
Since real estate is a tangible asset that will always be needed, you're able to finance your investments and grow your wealth with somebody else's money. There are also incredible tax benefits to investing in real estate, so you're able to keep more of the money you make. These advantages make becoming a millionaire in real estate easier than doing so with any other type of investment.
1. Learn about real estate investing
Before jumping into real estate investing, you want to learn as much as you can about the types of investments and strategies there are. Learn about what's involved in managing a property, how taxes work, and what it will take to get financing.
Learn about the four wealth generators in real estate and how you'll profit from each. The four wealth generators are:
- Cash flow.
- Tax savings.
- Building equity.
Understanding how each of these works will help you maximize your real estate profits.
There are many books and resources available to help you learn how to invest in real estate. It's also a great idea to get advice from other investors. Just make sure you're getting advice from the successful investors. If you can find a mentor, that's even better.
2. Set your goals and make a plan to become a millionaire in real estate
Now that you understand how different real estate investing strategies work, it's time to set your goals and make a plan. Without a specific target and a plan to get there, you'll never know what you're working toward.
When you set your real estate goals, you need to go farther than simply saying you want to buy real estate and become a millionaire. Write down:
- What you want.
- Why you want it.
- What your life will look like when you have it.
- A date you're committing to achieving your goals.
- How you're going to do it.
Your goals should also be broken down into milestones. Set smaller goals that you need to reach to get you closer to your big goals. Decide what you need to do every day that's going to move you closer.
Just like a new business needs to put together a business plan, you need to put together your real estate investing plan. The plan that will work for you depends on your current situation. Your approach will have to be different if you're starting with little money than it will be if you already have enough capital to buy an apartment building.
3. Stop waiting and get started
Most real estate investors fail before they ever get started, simply because they never actually get started. Now that you have your plan in place, commit to taking that first step. Start looking for deals, and start looking at properties.
It's easy to get stuck in the planning stage and get hung up on the small details that aren't actually going to move you any closer to getting your first deal. Every day, you need to be asking yourself, "What am I doing today that's getting me closer to becoming a millionaire in real estate?"
4. Write offers with terms you can afford
What kind of deal are you able to do today, with the money you have? Do you need the seller to finance some of your down payment, or do you need somebody to give you a land contract? Whatever it is, start writing offers for a deal you can do. It's all about persistence. If you write enough offers, somebody will eventually accept. If you can find a real estate agent who can spot a good real estate investment, they can help you locate the right properties and help you through the offer process.
Scott Gillespie, real estate developer and founder of The Gillespie Company, says, "Being patient and persistent is the most important thing you can do if you want to become a successful real estate investor." When talking about his own journey, Gillespie said, "It took a long time to get my first project off the ground. It wasn't easy. I had to keep working at it every day, and eventually it came together."
If you're starting with little to no money, a hard money lender may be flexible enough to let you get a deal done. Many banks won't allow the seller to finance any of the down payment, and if they do, they will limit the amount they're willing to allow them to finance. Hard money lenders typically don't care as much about where the down payment is coming from, as long as they have the loan secured with a first-position mortgage. Hard money loans usually have a higher interest rate, but as long as your deal has positive cash flow, you're moving closer to your goal of becoming a real estate mogul.
5. Generate cash flow
Your properties should produce positive cash flow after covering expenses and debt service. This way, the income from the properties will continue paying down the debt and building equity, while also providing monthly income. As your portfolio grows, so does your income. Each month you will be getting closer to your goal of becoming a real estate millionaire.
Appreciation can be very unpredictable, unless you force appreciation by increasing the cash flow of a property. Generating monthly income is the only way to be sure you're going to profit from your real estate deal.
6. Grow your portfolio
If you want to become a millionaire with real estate, you'll have to buy more properties, and buy properties with multiple units. The first thing Grant Cardone, founder and CEO of Cardone Capital, said when asked how to become a millionaire in real estate, was "All real estate is not created equally. Anyone who thinks they can become a millionaire simply by single-family homes will be greatly disappointed. Do the math; how many $40,000 homes do you think you would have to buy to make $1,000,000?"
Residential real estate is the easiest and most affordable way to start, but becoming a millionaire will take more cash flow than what rental properties can generate. This is why it's important to grow from that first rental property.
Cardone said, "The number of units is the most important number in real estate. Do the math; it's much easier to buy one property where there are 32 units. Increase the rent $125, and you add $1 million in value, and do so while getting the cash flow while you wait."
In fact, Cardone said the number of units and quality of the property is more important than the price.
"If it's easy to buy, it'll be hard to sell. The old buy low and sell high strategy means you'll miss out on the best real estate in the world," he said.
7. Trade up to larger properties
You'll find that the wealthiest real estate investors prefer to buy commercial real estate or multifamily properties. These types of properties will generate more income, and a 5% increase in value on a $1 million property will earn you a lot more money than a 5% increase in the value of a residential property.
One of the great tax benefits to real estate is the ability to defer capital gains tax when you sell a property with the intention of purchasing a new one. This is called a 1031 exchange. There are many rules to follow with a 1031 exchange, but the significant tax savings will leave you with more money to buy more profitable properties.
Another option is to refinance your properties once you have built equity, and use the cash you receive as a down payment on another property. If planned properly, this is a strategy you can use over and over again as your portfolio grows.
8. Keep growing
Once you buy one property, the cash flow and equity makes it easier to buy a second. Buying the second property makes it even easier to buy the third, and this pattern continues as you acquire more real estate. The larger your real estate portfolio is, the better protected you are from the losses you'll experience on certain deals.
9. Stick with what you know
When you find an investing strategy that's working for you, be cautious when venturing into different markets and different types of deals. Too many investors have lost a large part of the wealth they've accumulated when they've taken a lot of risk on a deal in unfamiliar territory.
Growth takes change and stepping outside of your comfort zone, but that doesn't mean you should do it blindly. Once you've figured out how to become a millionaire in real estate, your success is largely due to the amount of expertise you've gained in the process. Learning as much as you can before getting into a new kind of investment will help minimize the risk.
The bottom line
Becoming a millionaire in real estate is not a far-fetched goal. It's also not an easy goal to achieve. Don't expect it to happen overnight, but know that you can make it happen. Gaining the right knowledge, making a plan, and continuing to be persistent in your plan to become a millionaire in real estate is the key to real estate investing success.