Wanting to be a millionaire used to be the best thing in the world. Being a millionaire in previous times was more prosperous than today simply because prices have gone up and the price of the dollar has gone down. Regardless, being a millionaire is a very coveted achievement for individuals especially those who came from nothing. Of those millionaires, there are 46.8 million in the world. Everyone asks themselves how did these millionaires make their money.
A lot of them did it the traditional way so they are millionaires on paper, but have all their money in assets or property. Other millionaires have made their wealth primarily through real estate. It is rare because we have a limited amount of earth and it is wealth-building because it will increase in price and some of those pieces of real estate will even have businesses on them to generate cash flow.
In this article, we will be discussing the topic of millionaires and how they make their money specifically through real estate so you can live in Scottsdale homes for sale.
Start with the Banks
Real estate is one of the cornerstones of most millionaires’ wealth. Maybe it’s because of the amount of leverage one can have with a mortgage as opposed to starting a business with a personal loan. In real estate, a person can take control of a piece of property even if the person doesn’t have any money. As long as they know what they’re doing and can build the right teams to perform a real estate deal like a fix-and-flip in single-family or create syndication for commercial real estate. You’ll hear this across the real estate industry, but I’ll say again here; the banks care more about the deal than they care about you.
They don’t care if you have a 580 credit score with no income, what they’re looking for is for the team to be strong and for the deal to be able to pay itself. The bank will analyze it, but if it’s good they can’t pass on it. Now you’ve partnered up with a bank and have tremendous leverage. If you’re able to get past the little hurdles of doing your first deal or being able to raise capital to buy a bigger deal, then you’ll be in a good placement to strategically purchase an income-producing asset. Millionaires get rich by investing their money into vehicles that will make them even more money to have more money to invest.
Getting started – Home hack with a duplex
If you want to be a millionaire you have to start somewhere. One of the most common strategies used among new real estate investors is the house hack formula where you use something like a duplex or triplex and live in one of the units to rent out the others. This ensures that you have a place to live and that you’re paying the rent mortgage with the rent from the renters. If you pick out the right duplex or another multifamily you can start to build some serious cash flow to the point where you can hire property managers. Home hacking won’t get you a lot of cash flow, to begin with, but you will start to build your experience, track record, and hopefully your network.
Build/maintain your credit
Millionaires become that way by focusing on specific actions that will put them in a better position than they were yesterday. A great way to do this is by building, maintaining, and improving your credit score. Getting mortgages on different properties will start to get harder because lenders typically don’t want to see too many mortgages by a single individual. This is when a millionaire is made because you’ll need to begin buying the properties in a corporation.
Once you open this portal you’re able to save so much money on taxes and depreciation, etc. Depending on how you want to structure your real estate business, you’ll want to maintain your credit in order to continue getting mortgages. If you end up raising capital from investors then it won’t matter, but it’s still nice to say you have a 790 or 800 credit score in case anyone asks.
Location – Just as it sounds, do the market research
To find the property that will be appropriate for your strategy you have to do some searching for a market first. Good real estate markets are always going to be those that are growing in size and that are creating jobs. If they have a large hospitality industry, an airport, a college campus, and good neighborhoods then this is a great market. You’ll have to look further into the type of markets because we don’t have space in this article. Not every market in the country is in the same phase at the same time. Some will be more prosperous than others while a few years later the tables will turn. This is why it is imperative to stay informed about what happens in different markets. The best way to stay up to date on the real estate market is by using real estate investment software such as Privy. An intelligent millionaire investor picks the market and then picks what strategy they want to use. Are they going to hold long-term or do a short-term play?
- Long-term: Buying and holding is the typical strategy where just like in stocks you’re buying a piece of property knowing it will be worth more in the future than you paid for it today. This is the beauty of real estate investing. It’s investing in the long term because the value increases over many years. It’s not a get-rich-quick scheme instead it’s a get-rich-for sure plan. A long-term strategy can be something like the development of apartments or offices. The larger the size the longer the deal.
- Short term: These include projects like fix and flips where you buy the property for three to six months and then sell as soon as it is fixed. An even shorter term than that is the process of wholesaling property. When you wholesale a deal you’re essentially selling the paper contract signed by you and the original seller. You sell the contract to the end buyer and do two closings, one with the seller, and one with the buyer. In the end, everyone gets what they want and you take home a finder’s fee of $5,000 to $10,000. Short-term strategies are like working a job since you have to find the next one right after you finish the last one.
Residential vs Commercial
The common misconception that once your portfolio is built up with residential you may want to consider crossing over into commercial depending on the market and your available capital is kind of a scary method. People think they can’t participate in large transactions because they believe they need to have all the money themselves. This is far from the truth. This is the crossover into the big millionaires club. This is where you break away from the slavery of money.
You can do a syndication deal for a large apartment building with a few investors and a couple of partners and you’re guaranteed not only cash flow for the life of the deal, but the appreciation, and all the tax benefits that come with being a professional real estate investor. Depending on the market, the size of the deal, and the cost of the property, you could very easily create a million dollars in equity plus acquisition fees for syndicating a deal. It’s a tough thing to do, but it’s the fastest way to become a millionaire real estate investor.
In conclusion in this article, we discussed the topic of millionaires and how real estate seems to be one of the cornerstones to most millionaires’ wealth. The leverage of capital, the tax incentives, a hedge against inflation, cashflow while you hold, and the ability to tackle large deals make real estate very lucrative. A few deals done correctly can alter the future of your family forever. The longer you can hold on to a good deal, the more money it will make you.
If we had to choose between commercial and residential we would have to choose commercial because it pays off the most. That doesn’t mean we don’t like Scottsdale homes for sale, and if you are in that area lookup The Kay-Grant Group, they are more than happy to help. It takes the same amount of mental and physical effort to do a 100 unit apartment building deal as a two-unit duplex. Go out and get rich.