Millennials are developing their knowledge in real estate and are opening up to more real estate investment opportunities. With millennials entering their period of adulthood, they’re now at a point in their lives where securing their future financially is their top priority. Real estate investing is the best way to produce positive cash flow and reach financial freedom. However, a commonly asked question by many people and especially millennials is “How to get rich in real estate?”
This article can be your guide on how to get rich in real estate and your first step towards the road of riches. Learn about the different investment strategies and choose one that is suitable for you and, before you know it, you will be making money in real estate like a pro!
Read Also: How to Get Rich in Real Estate – 4 Investing Strategies
First things first, you need to understand the four primary wealth indicators in real estate. You should keep these indicators in mind in order to be able to determine whether or not the real estate investment you’re getting yourself into is worthwhile. If one or more of these indicators are found in your investment, then you can guarantee that your property is profitable.
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Cash Flow
Cash flow is the extra amount of money you get to keep each month from your investment property. When your rental income exceeds the costs of property expenses, then your property is generating positive cash flow. The overall amount of cash flow you will receive every month can vary depending on factors such as repair costs, vacancy periods or if your property needs appliances, roof repairs, new windows, plumbing, etc.
Related: How to Find Positive Cash Flow Properties
NOTE: If you want to know where you can find positive cash flow properties, then you need to check out Mashvisor’s property finder tool. This real estate investment tool will help you locate the best-performing properties in the city/cities of your choice.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
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Appreciation
Real estate appreciation is when the property’s value increases over time. It’s not always guaranteed that your investment property will increase in value but generally speaking, real estate values have always increased in the US housing market. Another type of appreciation which every millennial should be aware of is “forced appreciation” which is when an investor increases the value of the property by physically improving the property.
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Loan Pay-down
When you purchase an investment property with a mortgage loan, your tenants pay off the loan for you. From the rental income you receive every month, you can pay off your mortgage. So it’s as if you are buying an investment property without having to save up for the monthly payments. Your tenant paid it off due to the “loan pay-down.” How can this make you rich in real estate? When your rental income is high and your rental property has a high occupancy rate, you’ll pay the loan off faster and enjoy the profit from then on!
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Tax Benefits
The final indicator that you’re generating wealth from real estate is the glory of tax benefits. Real estate investors get tax benefits like extra tax write-offs, lack of “self-employment tax”, 1031-exchange and much more. Real estate investors pay less tax than any other type of business. So if you’re wondering how to get rich in real estate, you can use the extra cash to buy more investment properties or use the cash to pay off your loan faster. Either way, you’re building your way to greater wealth!
Related: Is Tackling a Holiday Home Sale the Way to Go?
Now let’s talk about the different real estate investment strategies that will answer your commonly asked question “How to get rich in real estate.”
How to Get Rich in Real Estate: Fix and Flip
One of the most common ways to make money in real estate is through flipping properties (fix-and-flip). As the name implies, real estate investors buy investment properties and fix them up and then sell them to make a profit.
First, you will need to find an investment property that is appropriate for fix-and-flip. This means that you want to look for properties that are in distressed conditions. Properties that are in bad conditions are often priced much lower and are sold below market value. However, the number one thing you want to keep in mind is the cost of renovations. You don’t want to purchase a property and put more money into fixing it than the price you’re selling your property for. The cost of purchasing the property plus the cost of renovating it should always be less than your intended selling price. How else will you make a profit from flipping homes?
The good thing about the fix-and-flip investing strategy is the short amount of time that is required to complete the investment. Plus fix-and-flips have their own types of properties that other investment strategies try to avoid which are properties that are in bad condition. Foreclosed homes, for example, are included in the category of properties that are in “bad condition” and many real estate investors stay away from this type of property.
Related: Buying an Investment Property to Rent vs Fix-and-Flip: Which Is the Smarter Decision?
How to Get Rich in Real Estate: Invest in REITs
Real Estate Investments Trusts (REITs) is one of many answers to the question of “how to get rich in real estate.” This type of investment strategy is great for investors who are not interested in getting actively involved and prefer a more passive form of investing.
This is how it works. A real estate investor contributes a certain amount of money to a REIT company and they will put this money towards one or more real estate investments. This generally means that you are sharing ownership with a number of real estate investors who also invested their money in REITs. In the end, the real estate investor will receive a portion of the profits that the investment generated in the form of dividends.
The good thing about investing in REITs is that it requires no time or effort from your behalf. Also, an investor can invest in more than one project at the same time. This is a great strategy for those wondering how to get rich in real estate with little work.
How to Get Rich in Real Estate: Invest in Short-term Rentals
Another easy strategy that will help you make money in real estate is by investing in short-term rentals. Short-term rentals are income producing properties that are rented out for short periods of time. They are also known as Airbnb rentals or vacation rentals. The good thing about investing in short-term rentals is you control the rent period and the rent charge. You can take advantage of the seasonal peaks and raise your property’s rent. This is one of the fastest ways to make money in real estate and it doesn’t require a lot of work. Even if you don’t have a property of your own, you can still rent out a furnished spare room in your home as long as you have an Airbnb account. But always make sure to check your city’s Airbnb regulations just to be on the safe side as well as your lease agreement if you’re renting.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
How to Get Rich in Real Estate: Buy and Hold
The simplest answer to “How to get rich in real estate?” is to invest in buy and hold real estate. Basically, buy and hold means that you buy an investment property and you hold on to it for a period of time until it appreciates in value and you sell it for a profit. This is probably the easiest investment strategy and it requires little to no effort. The owner has full control over the property and can choose to either rent out the property or use it as a primary home. In the end, all that matters is for the investment property’s value to increase so that you can sell it for a profit.
Read Also: How to Make Money with Buy and Hold Real Estate Investment Properties
Tips for Millennials on How to Get Rich in Real Estate
Before I leave you to embark on your journey to collecting riches, let me give you a few quick tips to keep in mind. These tips are not only for those wondering how to get rich in real estate but also for those wanting to succeed as a real estate investor.
- Always look for properties below market value so that you can get a better return on investment.
- Look for properties that offer high cash on cash return and cap rate.
- Try your best to make a large down payment since it will save you from the interest you will have to pay for the loan.
- Take loans that will allow you to remortgage or switch to a new mortgage deal.
- Try your best to purchase more than one property and diversify your real estate investment portfolio.
- START EARLY! The earlier you start, the earlier you will get to enjoy the money you are making.
A Final Word
The strategies mentioned above are just some of the many strategies that you can follow. If you want to learn more about making money in real estate and how to get rich in real estate, then check out Mashvisor’s knowledge center for all the latest tips and strategies.
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