It’s no secret that there is no proven way to be rich without making the efforts to do so. However, some businesses have a higher probability to help you make a fortune more than others, and real estate investments are a good example of these businesses. Anyway, many think real estate investments are always safe and any fresh investor with no knowledge and experience can make a make a fortune in the blink of an eye. It’s true that the real estate investments domain has fewer risks than other investments like stocks and it is an ever-growing field. Still, any real estate investor needs knowledge, research, and analysis before getting involved in investing in properties in order to succeed and get wealthy in a reasonable period of time.
How can real estate investments help you become rich?
There are several advantages of real estate investments including:
Constant cash flow
Cash flow is the amount of profit a real estate investor can get every month from a rental property. If, for example, a rental property produces $1,000 every month, and its rental expenses are $700, then there’s a $300 profit every month. Now, $300 won’t make anyone rich, but it’s a constant amount of money. It’s crucial for a real estate investor to search for real estate investments that have a cash on cash ratio of 20% or higher. In addition, if a real estate investor has 20 rental property, there is a chance he/she will get rich in a short period of time.
Related: Is Real Estate The Best Way To Get Rich?
Appreciation
One of the best things about real estate investments is that their values are almost always rising. Population and immigration keep growing, and, as a result, the need for places to live in grows as well. This raises the demand for real estate investments and raises their values in the market. For instance, if you purchased a property 10 years ago for $100,000, and you want to sell it in today’s’ market for $200,000, there is a $100,000 profit. However, real estate investors shouldn’t rely only on time to increase the property value. There is a serious need for improving the investment property condition to make it more attractive to tenants as well as property buyers.
Mortgage pay-off
At the first glance, buying your real estate investments using loans doesn’t seem as an effective way to make you rich, especially that you have to pay an interest in addition to the loan value. But if you look carefully, you’ll notice that it can make you rich, since after a period of time, you’ll finish paying off the mortgage, and you will own the investment property which can make you a fortune.
You can as well use the extra money you get from the investment for buying another investment property which will generate more cash flow for you. You can start a circle of real estate investments that are dependent on each other, using the profit you gain from a certain property for paying the mortgage of another one. This circle of real estate investments can make you a wealthy real estate investor if you handle your investments smartly.
Tax benefits
The US government offers a lot of tax benefits for real estate investors. First, there is no income tax on the money a real estate investor can gain from cash flow or from appreciation. The government doesn’t consider these as a source of self-employment income, so they are not taxed. Second, when you sell your rental property, the tax on profit is determined with regards to the long-term cap rate. Thus, when it comes to taxes, real estate investors are lucky in comparison with other kinds of investors.
Related: All You Need to Know About Rental Income Tax
Want more specific tips?
The above-mentioned factors are general, but if you want more specific ways to follow to become rich with real estate investing, here you are:
Fix and flip
If you’re willing to dedicate a considerable time and efforts to real estate investments, the fix and flip strategy is the way to follow. It means that you buy a certain real estate property that needs repairs in order to sell it at a higher price after you fix it. A real estate investor has to have the necessary experience when going for this real estate investment strategy. He/she must choose real estate investments that need little modification that doesn’t cost much. Otherwise, the process is not worth the efforts. It’s very important for the real estate investor to get real estate properties below the market value, so the process of fixing them and selling them back becomes worthwhile.
Now, some real estate experts might argue that this isn’t a way of getting rich. Of course, you’re not getting a fortune from one flip and fix property. You have to use the money you get from the first investment to start a bigger one, and so on until you have several real estate investments at the same time. This is how you start getting rich from the real estate investments in general.
Early paying-off mortgage
If real estate investor manages to have several real estate investments at the same time in a short period of time, he/she can start paying off the loans of some investment properties at once. In this way, the investor will have to pay less interest, and more importantly, will own several investment properties which are the key to getting rich in real estate investments. The real estate investor will have more sources to finance his/her investment, and this is one of the main obstacles regarding having several real estate investments at once. With time, purchasing a new property will be easier for the real estate investor. This is why it is important to start as early as you can so you can accumulate the profit and have enough time to get rich.
Related: How to Get Rich in Real Estate: 4 Different Cycles
To sum up
Real estate investments can be the right track to follow to make a fortune, but you have to measure your steps carefully. Investing in real estate properties has many advantages over other risky investments; however, it can be risky as well if you don’t make the required effort. There are several real estate investments calculators that help you throughout the process of choosing the right real estate investments to have and that make the basic calculations that give you the red light to start your investment. You can try out Mashvisor for the best investment property finder and investment property calculator.