Real estate is a powerful wealth building tool and has made millions of big investors. A large portion of their business and wealth is still based in real estate and it is one of the main investments helping them stay rich.
Financial samurais concede that most millionaires have used real estate to make their fortunes. In fact, statistically speaking, real estate bags the topmost position if you go about considering which assets the world’s billionaires are most invested in. It is especially true for India’s high net worth individuals (HNWI). A recent report by a London based real estate firm found that India’s HNWI individuals have heavily invested in foreign real estate and 87% of them are purchasing properties only for investment purposes.
By real estate investment, I don’t mean buying a property and waiting for another 10-15 years until its market value increases. What I am referring to are investment in real estates which include ‘income producing properties’. These properties lead to constant income, like rental estates which generate revenue from tenants and Real Estate Investment Trusts (REITs). Remember, a house in itself is not an asset- It takes money out of your pocket via maintenance. Investment real estate puts money back in the pocket.
Can it be the road to becoming rich?
Real estate has worked for many. Many self-made billionaires started off with real estate to build the kind of wealth they always dreamt of. Could real estate become your starting point too towards the road to becoming rich?
Obviously, a big yes!
But it is not to say that there aren’t any accidents in real estate industry. There have been incidents when people started out with great enthusiasm, only to find their bank accounts empty. Owning a piece of land is one thing and knowing what to do with it, is another.
Why some investors are not rich
The lack of it is the reason why some real estate investors are not rich today. They are not willing to go through that process of looking at 100 deals to find that one RIGHT deal. As they say, you have to kiss a lot of frogs before you find your prince. This process is very important. One has to grow in the process and learn from mistakes. New investors fail to do that, and real estate fails them.
Real estate is not a lottery, or an overnight success formula. It is not for an impatient investor. Getting educated about what you are going into is of extreme importance. Remember- If you are able to empty the purse in your head (is able to do the math about pros and cons), no man can take the profits away from you. And, expertise is needed for that, which comes from practice!
How can real estate investment make you rich?
Understand that you have made a good investment when you are not working for the property you bought, like repaying mortgage amounts; rather the property you invested in is working for you- paying monthly mortgage amounts by itself via rental income and also generating extra revenues.
Do you remember playing the game ‘monopoly’? In that, the principle to becoming rich was 4 on 1, i.e. get four green houses and then sell those to set up one red hotel. Obviously the hotel was way more revenue generating than 4 green houses.
Real estate investment works similarly. You can start an income stream even with one room apartment. Buy an apartment, and put it on rent. Afterwards, you can choose to flip it (i.e. sell and buy other property, if you see profits in the deal) or accumulate enough money from rental to make down payment on another profitable investment property. This way, keep learning and climbing the ladder.
Getting rich with real estate in less money
Not everyone has a rich father to inherit millions of money from. Everybody starts from somewhere or the other. One leading wealth generating aspect of real estate which makes it accessible for people of all length and breadth to invest and earn from it, is Leverage! Leverage is the key to real estate wealth. In simple language, it is equivalent to saying- while the bank will pay for your property, the profits earned on the property will be 100% yours.
- Increase in returns with leverage: If you buy a property on home loan, then even when you pay only 10% down on a property, you will still get rental income for entire 100% property, which is an awesome return for putting 10% money.
- Earn profits on a property for which you paid only a fraction: If you buy a property worth 20 lakhs by putting 2 lakhs down and then sell it for 24 lakhs after some years. You will straightaway get not only the principal payments to pay your loan, but will also get 2 lakhs profit. So, technically you are making 100% profit on a property you paid 10% for. Essentially, you will earn 2 lakhs, while the bank will get only 18 lakhs back, plus some interest, which would anyway be taken care of by rental income the property will bring.
Where else, can you make so much with so little?
Earning from short-term real estate investments
Beside leverage, if you are interested in earning from short-term real estate investments, you can choose to go for fixing and flopping of properties. Flipping constantly in short time periods can be considered as investing (don’t do it unless it’s profitable) since this can lead to constant income. But remember, in this, you would need a great eye for real estate. It involves buying properties and selling them via forced appreciation, i.e. fixing, or by rise in market value of the property.
Once you fix the ills of the property, get the fixtures done and bring the property in good health, it will ultimately sell in higher prices than you bought; make sure you don’t spend on the fixtures more than you get in profits. The trick is to invest in a property which would demand minimal fixing to increase its value.
Real Estate investment is a game. Like all other games, it has its rules, its tools and pathways to success!
- A property bought for personal use is no asset, invest in ‘income producing’ real estate to become rich.
- Be willing to go an extra mile to look for the right property deal and keep educating yourself about real estate investment.
- Make sure to use the benefits of ‘leverage/debt financing’ when investing in real estate.
- Make sure your property generates enough revenues to pay off monthly mortgage payments.
- Try to ensure positive cash-flow from the property after you deduct monthly EMI commitments from monthly revenues generated by the property.
- If you have a good eye for real estate, then flipping and flopping may generate good returns in a short-period of time.
There is a reason why traditionally people use to call property owners the lords and now we call them- ‘landlords’. There is a reason why millions have made their fortunes in real estate. It’s because it never goes out of demand, i.e. People will always need a place to live and it gives the investor, the control over their investment, like no other investment medium. You can raise its value by renovating the place (forced appreciation) and when markets tank, you can choose to hold on your property until market rises again, or keep it on rent while earning income in slumped market conditions.
Sure, real estate is not the only way to becoming rich, but having been used by many stalwarts, real estate has sure proved itself to be the easiest way to becoming and staying rich. If becoming rich is your goal, the odds are that real estate is the way towards it.