How Real Estate Can Make You A Millionaire
You can become a millionaire through real estate.
This may sound like a wild sales pitch from a shady investor, however - the reality exists. Real estate can be used as a powerful wealth building tool that has made turned millions of individuals into millionaires.
You could be next. But there is a catch... Not everyone who buys a piece of property becomes rich. To be honest, plenty of people buy real estate only to find empty bank and anxiety. Some struggle for years and never build the wealth they've dreamed of.
So the question remains - how can someone use real estate to truly become a millionaire?
According to Forbes contributor Brandon Turner, there are four primary “wealth generators” that can contribute to wealth when you invest in real estate, depending on your strategy.
1. Cash Flow.
This represents the income you’ll keep each month (or year) that you own the property. Cash flow can be misleading at times because it fluctuates when the cost of repairs vary in different months. Always factor in non-monthly costs like vacancy, repairs, capital expenditures (expensive projects such as appliances, roofs, windows, plumbing, etc.), along with the regular expenses such as utilities, management, etc.
When the value of property increases, this is called “appreciation.” While not always guaranteed, historically, over time real estate has always increased in America, averaging 3% per year over the past 100 years. Another type of appreciation that can build is “forced appreciation,” which is the concept of increasing the home's value by physically improving the property.
3. Loan Pay-down.
When you buy a property with a mortgage, each month your loan balance decreases. So basically, your tenant is paying the loan down for you, helping you build wealth. To make this concept clearer, pretend for a moment you owned a property that you bought for $1,000,000 with a mortgage for $800,000, and it made $0 in cash flow. You “broke even” and the property never gained value. However, after that thirty-year mortgage is paid off, you’ll now have a property worth $1,000,000 that you didn’t actual save for.
4. Tax Benefits.
The final wealth generator from real estate comes from tax benefits associated with owning property in the United States. Our government likes real estate investors and uses the tax system to encourage purchasing and leasing properties. From extra tax write-offs to the lack of “self-employment tax”, real estate investors can pay significantly less tax than other business owners. They can then use using the extra cash to buy more properties or pay down the loan faster — helping to generate more wealth.
Of course, just buying some real estate will not earn all of the above benefits for you. There are various strategies in real estate which will deliver varying benefits. For example, when you "flip houses,” you are most likely not paying off a loan. Thus you would not benefit from the “loan pay-down” nor would you receive the cash flow. Instead, flipping relies on the “forced appreciation” you get by fixing up a home.
Or course, based on your investment strategy wealth building takes time. Who wants to wait 30 years to become a millionaire?
Here are a few ways you could speed up your wealth generation:
- Get a better deal.
- Buy more deals.
- Buy in appreciating areas.
- Force appreciation.
- Trade up.
Of course, this barely scrapes the surface on what real estate investing can do for you and wealth growth. In fact, there are many different paths and strategies you could take to become a millionaire through real estate. You could spend your whole life learning about real estate and never learn it all. And that can become a problem - where you could get stuck in a mode of educating yourself and never escape it.
The key is to not get overwhelmed and not try to learn everything. Pick one niche and one strategy to focus on. Read one or two books on the subject, and then get moving! Find local help from others who are doing the same thing that you want to do, and take them out to lunch. Ask for help, but never stop moving!
Source:Forbes / Investing / #DreamHome
By Brandon Turner