Andrew Carnegie asserted that 90% of all millionaires became millionaires through real estate investing. While the world may have changed since Carnegie’s time, today’s millionaires and billionaires still share his enthusiasm for real estate investments because of the benefits they provide. Between the passive income potential, long-term appreciation, and tax benefits, real estate continues to be the investment of choice for the wealthy.
Even better, real estate can make millionaires out of everyday investors. At Gatsby Investment, we want to show you how to become a millionaire through real estate investing. You might be surprised at how easy and fun it can be.
Becoming a Millionaire Through Real Estate Investing
With so many different options for real estate investing (as we’ll outline in just a bit), there are lots of ways to make money in real estate. But the classic real estate investment model of buying a property and renting it out is likely the most reliable method to becoming a millionaire through real estate investing.
This buy-and-hold model is so effective in boosting your net worth because it comes with four different wealth-generators built in. Let’s take a quick look at each of these four.
1. Cash Flow
Cash flow is the rental income you receive. Much of the rental income will be used to pay property expenses like the mortgage, property taxes, insurance, and maintenance costs. But, assuming you chose your investment property wisely, you’ll have a fair bit of profit left over after paying those expenses.
This creates passive income from real estate, which you can use for living expenses, or you can put your earnings to work by using them to fund additional investments.
Appreciation is the value growth of real estate over time. Los Angeles County, for example, saw an increase of 14.4%in the median home sales price from December 2020 to December 2021. Real estate can experience recessions, in which values temporarily dip, but they always come back up because people always need a place to live, and land is a limited resource.
3. Tax Benefits
As a property owner, you’ll enjoy the tax benefit of investing in real estate, including deductions for depreciation, capital improvements, and mortgage interest expense. Being able to deduct these standard expenses from your taxable income can save you thousands of dollars on your taxes every year. The more real estate you own, the greater your tax savings.
4. Debt Leverage
The fourth way you make money on renting out real estate is by having renters pay down your debt. By taking out a mortgage, you can access an investment that you might not be able to pay for upfront. But, instead of paying back the debt yourself, as you do with your primary residence, you benefit from having your renters pay off the debt for you.
With this combination of income, appreciation, tax breaks, and debt leverage, you’re well on your way to becoming a millionaire in real estate.
Before you dive into real estate investing, there are a few things to consider. After all, there are several mistakes to avoid when investing in real estate, and without proper planning, you’re more susceptible to those mistakes.
So here are some investing considerations to make before you purchase your first investment property.
How Much to Invest
Real estate is generally considered to be an illiquid investment, meaning it’s difficult to get your cash out of the investment once you invest. Some real estate investments are more liquid than others, but if you want to become a millionaire through real estate investing, you probably need to invest in long-term projects. So you should review your finances carefully to make sure you’re comfortable tying up your capital for a bit.
How Long to Hold Investments
Real estate is traditionally a long game. Sure, we’ve seen market booms recently that have made millionaires of real estate investors practically overnight. But that is not typical. Typical growth is slower and steadier.
If you’re looking to make some quick money, renovating a single-family home can take less than a year. But you’ll miss out on the cash flow, tax breaks, debt leverage, and appreciation of rentals. So you might prefer to hold an investment for longer to take advantage of the four wealth-generators of the buy-and-hold model.
Which Types of Real Estate to Invest In
As we alluded to earlier, there are lots of methods for how to invest in real estate, including:
- Single-family homes,
- Multi-family properties,
- Real estate development,
- Commercial real estate,
- Securities (like REITs, mutual funds, and ETFs), and
- Real estate syndication (where you pool your capital with other investors to buy an ownership stake in a higher-value property than you could afford alone).
You don’t need to choose just one investment type. In fact, when you know how to build a real estate portfolio, you can assemble a diverse group of investments to minimize your risk and maximize your returns. But you need to consider your options and decide where to start.
How to Become a Millionaire Through Real Estate Investing, Step-by-Step
Here’s a simple, three-step plan to help you earn your first million in real estate.
Step 1. Do Your Research and Create Your Investing Strategy
Before making any investments, it’s important to do some due diligence. You need to understand your investment options and create a flexible investing strategy. If you’re going to buy a property, you need to understand the local real estate market and thoroughly inspect any property you’re considering before buying. And if you’re going to invest in securities like REITs, you’ll want to review the prospectus, which outlines the details of the fund.
Your real estate investing strategy can be a loose plan of which investment types you want to acquire to reach your ultimate goal. Maybe you want to own a million dollars worth of assets. Or maybe you want your assets to generate a million dollars in income. How do you plan to get there from where you are now?
Our Education Center is full of useful articles, written by industry experts, to help you grow your knowledge of real estate investing and develop your investing strategy.
Step 2. Make Your First Investment
Your first investment asset is typically the most difficult to acquire. But, once you’re on the property ladder, subsequent investments will be easier.
Every investor is different. Some choose to start small with inexpensive, liquid real estate securities. Others dive in, purchasing a property to fix and flip or rent out over the long term. The important thing is to get started. Even with all your research, you will still be experimenting in your early stages as an investor. Investing is a learn-as-you-go venture. So don’t wait until you feel like you know everything. Get started in whatever capacity you can as soon as possible.
Step 3. Reinvest Your Profits
Rather than spending any investment profits, reinvest them to grow your real estate portfolio faster. This is the secret to becoming a millionaire through real estate investing. It’s not enough to have one asset. You need to leverage that asset into more assets that can generate more profits to be reinvested into more assets. It’s a virtuous cycle that will set you up for generational wealth!
How Gatsby Investment Can Help
Gatsby Investment offers a modern twist on traditional real estate investing models. As a real estate syndicate, Gatsby matches accredited investors from all over the world to purchase high-value properties in the exclusive Los Angeles real estate market. By pooling your funds with funding from other investors, you can access deals that might otherwise be out-of-reach if you were investing alone. With as little as $25,000, you can purchase a share in one of our nine investment types:
- House flips
- Single-family renovations
- Single-family rentals
- Luxury home renovations
- Luxury home developments
- Luxury home rentals
- Multi-family renovations
- Multi-family developments
- Multi-family rentals
Our experienced team of real estate experts scouts properties, negotiates purchases, and creates the ownership LLC, with all investors listed as members of the LLC. Our team then handles all renovation work, new construction, or ongoing property management, as appropriate for each unique investment. We do the work, and you share in the results!
If you’re not a qualified accredited investor yet, don’t be discouraged. Start building your real estate investment portfolio now, and as you acquire more assets and grow your net worth, you’ll get closer and closer to accredited status. We’ll be here with unique investment opportunities for you when you're ready.