Investing in real estate is considered one of the best ways to build wealth consistently and achieve financial freedom. In fact, for most of the world’s millionaires, real estate is the best way to get rich. This is not surprising given that most of them created their wealth by investing in real estate. But there’s a catch. Buying a piece of real estate won’t necessarily make you rich. As a matter of fact, many people who get into real estate investing end up with empty bank accounts or just a few properties in their portfolio. This is because very few people actually understand how to make millions in real estate.
If you want to make millions in real estate investing, you have to do things differently. To help you out, we’ve put together this list of the top 9 tips to building wealth in real estate.
Tips on How to Make Millions in Real Estate
1. Spell Out Your Goals
Even before you begin searching for your first investment property to buy, be certain of what you hope to achieve from your investment. When you understand your investment goals, it becomes easier for you to align each of your investments toward achieving them. You will be able to choose wisely which type of property to invest in, how to finance them, and how to manage your real estate investments.
Remember, you should be very clear and specific about your investment goals. For instance, do you want rental income or capital growth or both? In how much time do you want to achieve this?
2. Focus on One Real Estate Investment Strategy at a Time
There are many ways to make money in real estate. You can invest in rental properties, flip houses, invest in REITs, etc. As such, it can be tempting to try your hand at every strategy.
However, when you are first starting out, this can be a big mistake. You are likely to feel overwhelmed and, in the long run, accomplish very little. It’s better to pick one strategy and focus on it until you become a master before you consider other strategies. With more experience in the field, it will be easier for you to diversify. But which real estate investment strategy should you begin with?
Generally, the best investment strategy for beginner real estate investors is buying rental properties. Apart from being a relatively simple strategy, if done right, you will be able to generate steady cash flow every month that will help you grow your real estate portfolio. It can be a great starting point for making millions in real estate.
3. Start Small
While it’s important to have big goals, you aren’t going to become a millionaire overnight. Real estate investing is not a get-rich-quick scheme. You have to break down your big goals into smaller and manageable steps. Over time, you can progress to bigger steps as your experience in real estate and your confidence grows. Moreover, you don’t want to use all your money with your first investment. It’s not likely that your first real estate deal will be the best. At this point, you are also more likely to make mistakes.
We recommend that you learn the ropes by starting small. Invest in cheaper and simpler properties like single-family homes to avoid catastrophic consequences in case things don’t work out. As you build your real estate knowledge, experience, and network of specialists, you will be able to make bigger investments with minimal risk.
4. Educate Yourself
Another key aspect of how to make millions in real estate is self-education. The most successful people in any field are usually masters of their craft. If you want to become a millionaire with real estate, you should take time to learn about real estate. Building your knowledge base will give you more confidence and help you adapt appropriately to changes in the industry. This will eventually put you ahead of the competition.
There are many inexpensive and free resources you can use to educate yourself about real estate investing and update yourself on real estate trends. This includes real estate books, blogs, journals, YouTube videos, podcasts, and more. You should also consider getting a mentor. You can learn a lot from other successful people in the real estate industry. You will be able to avoid the mistakes they made and grow even faster.
However, be careful not to get stuck in the “learning mode”. The key to success is taking action on your newly acquired knowledge. You don’t have to know everything before you get started. Learn the basics of your niche and then begin taking action. You will learn more as you move forward.
5. Have an Emergency Fund
When investing in real estate, make sure you have a budget and include an emergency fund. You should have enough cash reserves to help you deal with unexpected future expenses.
Look to have cash reserves that could cover at least 6 months of operating expenses. You never know when your investment property will sit vacantly or need urgent repairs. Such unexpected costs can adversely affect your cash flow and make it hard for you to cover your mortgage payments. However, if you have some extra cash saved up for a rainy day, they are less scary.
6. Use Leverage
Many low and middle-income earners who are aspiring to invest in real estate never get started or start very late. This is because they think that they’ll need to have a ton of money to be able to buy an investment property. While real estate investing is capital-intensive, you don’t have to use your own money. Smart real estate investors use leverage to buy investment property.
Leverage simply means using borrowed capital to finance your investment and paying down the loan over time. The most popular way of leveraging real estate is through mortgage loans. In essence, your tenant will be the one paying down the loan for you.
The main benefits of using leverage are that it helps to multiply your purchasing power and reduce risk. You will be able to buy a much larger income property and generate higher returns than you would if you used your own money. Therefore, buying multiple rental properties becomes easier and can be done much faster. If you are wondering how to make millions in real estate with a modest income, leverage is the answer.
Related: How to Leverage Real Estate and Get Rich
7. Run the numbers
Real estate investing is based on numbers. The more efficient you are at running numbers on rental properties for sale and interpreting the numbers, the easier it will be for you to find good real estate deals.
You want to invest in cash flow properties with a good return on investment. However, your cash flow and ROI forecasts are only as good as the tools you are using. There are many spreadsheets and software that investors can use for real estate data analysis. However, Mashvisor’s rental property calculator is by far the most efficient.
As you can see, our calculator allows you to analyze a number of crucial real estate metrics including:
- Rental income
- Cash flow
- Cash on cash return
- Cap rate
- Airbnb occupancy rate
Related: 7 Real Estate Numbers Every Investor Needs for Analyzing Investments
8. Buy Investment Properties with High Appreciation Potential
Apart from cash flow, investors can also make money in real estate through real estate appreciation. This is when an investment property rises in value. Appreciation allows you to charge a higher rent and still attract tenants. You’ll also be able to make a profit if you decide to sell. Appreciation will actually increase the spread at which you grow your net worth.
One way to ensure your investment property appreciates is to invest in growing markets. Some key growth indicators include a growing job market, population growth, and future development plans in the area.
Another way to improve your property’s value is to force appreciation. This is done through cosmetic improvements and renovations. Try to find properties that can increase in value with minor repairs and cosmetic improvements.
Related: The Best Tips for Forced Appreciation in Real Estate Investing
9. Build Your Real Estate Team
Another important investment tip for beginners trying to learn how to make millions in real estate is teamwork. Real estate investing has lots of moving parts. As such, there’s only so much you can do on your own. Moreover, since you are inexperienced, you are likely to make costly mistakes if you don’t seek guidance from experts.
To increase your chances of success, you need to surround yourself with a supportive team. Some of the key real estate professionals you’ll need to work with include:
- Real estate agent
- Mortgage broker/banker
- Property manager
- Real estate attorney
- Property inspector
- Appraiser
- Accountant
- Contractor
Of course, you won’t need all these people at the beginning. However, it’s good to have their contacts so that you can easily get them when you need their services. Just make sure you do your research and pick your team carefully.
The Bottom Line
Making money in real estate can be challenging. However, with the right strategies, you can do so successfully and even become a millionaire. If you follow the above tips on how to make millions in real estate, there’s a good chance that you’ll amass massive wealth.