Why you should invest in real estate
iSteel magnate and industrialist Andrew Carnegie claimed that 90% of the world’s millionaires have achieved their wealth through investing in real estate.
While Carnegie passed away in 1919 and his quote may be somewhat overused and outdated, there is no denying that real estate is a primary way that many of the richest people in the world today have accumulated wealth.
In fact, some of the richest people in the world have generated nearly all of their wealth through real estate, including:
- Donald Bren – Net worth: $16.2 billion
- Stephen Ross – Net worth: $8.3 billion
- Sun Hongbin – Net worth: $6.9 billion
- Neil Bluhm – Net worth: $6.4 billion
Now that you know that building generational wealth is possible through real estate, how do you get started?
5 simple tips for investing in real estate
Follow our simple tips to start building generational wealth through real estate this year.
1. Start small
Nearly all the people that have built generational wealth through real estate didn’t start by purchasing multimillion-dollar hotel chains and office buildings. Most real estate investors will start small by purchasing rental properties or living in an owner-occupied home.
Another term for living in an owner-occupied home is known as “house hacking”.
House hacking involves purchasing a residential property, such as a duplex, and living in one of the units while renting out the other units or bedrooms to tenants. The tenants then pay you each month, which will drastically reduce your monthly mortgage payment.
Depending on the location that you live in, house hacking can also generate positive cash flow each month, meaning you not only live for free, but you are making a profit each month from collecting the rent from your tenants.
House hacking is a great way to start small and get your feet with real estate investing and property management. It’s by far the easiest method and has the lowest amount of risk that you assume.
2. Fix and flips
Fixing up distressed properties and then selling them at a profit is another great way that you can start to build generational wealth through real estate.
The logic behind fix and flips is simple: First, you find a property that needs a significant amount of work and purchases it at a discount. Then you put money into the renovations and upgrading the home so it looks nice enough that you can sell it for a profit.
However, you will need to do extensive research before you decide to purchase a distressed property and plan to do a fix and flip.
You need to know a ballpark estimate of how much to budget for the renovations of the home, and also figure out what you can expect to sell the home for once the renovations are complete, known as the After Repair Value (ARV).
One of the disadvantages of fix and flips is that you do take on a fair amount of risk when you decide to purchase a distressed property. Purchasing distressed properties require upfront capital and then additional capital to put into the renovations.
Be sure to do your due diligence before taking on a fix and flip project and always make sure that you get a proper home inspection before purchasing a distressed property.
3. Form partnerships
Another great way to start building generational wealth through real estate is to form partnerships with other real estate investors.
Forming partnerships with those who bring complementary skills or assets to the table will give you a better chance at building wealth through real estate.
For example, maybe your strength is that you are able to analyze deals very quickly and accurately to determine if the investment would be worthwhile and profitable in the long run. If this was the case, you would want to partner with someone who has connections with other real estate investors or someone who can bring the capital needed to invest in these properties.
Forming partnerships in any business can be extremely beneficial, and real estate is no exception. Make sure that you find partners who have skills that complement your strengths and help mitigate your weaknesses.
4. Use appreciation to your advantage
One of the major benefits that investing in real estate provides is that properties tend to appreciate in value over time.
Unlike many other assets like cars, boats, and motorcycles, real estate prices are consistently shown to increase in value on a long-term basis. If you decide to purchase a property and then sell it ten or twenty years down the line, you can expect that property to increase in value, sometimes significantly.
In fact, according to Millionacres.com, the national appreciation rate is 2% month over month and 14.5% year over year on average.
That’s why a buy-and-hold long-term real estate investing strategy can help you build generational wealth for yourself and your family.
5. Do your research
In order to build wealth through real estate, you need to become accustomed to doing plenty of research before investing in any type of property.
Whether you are targeting a single-family home, duplex, triplex, or commercial buildings like offices and hotels, you are going to need to analyze the numbers and do extensive research before you decide to part with your hard-earned money and invest in real estate.
If you fail to do the necessary research that is needed to be successful in real estate, you risk losing your money and the chance to build generational wealth.
The Bottom Line
The key to building generational wealth through real estate is to start small with strategies like house hacking or traditional homeownership. As you get more comfortable with real estate property management and investing strategies, you will find that it’s easier to scale up your investing to start generating wealth.
If you follow our five tips to build wealth through real estate, you’ll put yourself in the best position to set yourself and your family up for financial security for generations to come.
If you have any questions or comments about today’s post feel free to email us at firstname.lastname@example.org to discuss!