Today I want to walk you through a simple explanation of how a person can go from really almost nothing to becoming a real estate investing millionaire. Buckle up, because I’m about to drop some knowledge on you. And if you find this helpful, don’t forget to visit REIAce.com to make your real estate investing endeavor easier and results come faster.
First, let’s clarify how this real estate thing works. We’re talking about buying rental properties, which means you buy a house or maybe a duplex or an apartment building, whatever, and you rent it out. But before I walk you through the math behind becoming a millionaire through real estate, let’s get on the same page (or should I say “the same board”) about the fundamentals of owning rentals and why they’re so powerful.
To do that, we’re going to talk about the Four Wealth Generators. These are the four things that make owning rental properties so awesome, and when combined together, can make you a millionaire:
Cash Flow
The extra money every month that a property produces in profit (income minus expenses). The key is understanding expenses, as they can be tricky. Basically, this is the money left in your pocket at the end of every month.
Appreciation
The simple truth that real estate tends to climb over time in value. Sure, things like 2008 happen, and prices drop, but over time, prices tend to climb. As long as you can hold onto a property long enough, you should see appreciation. That’s why cash flow is so vital; it allows you to hold on as long as needed.
Loan Paydown
When you buy a piece of real estate, you get a loan from a bank, which you then pay every month. Over time, the loan gets paid down, which means you might start owing $200,000, but eventually, you’ll owe nothing.
Tax Benefits
I won’t dive too deep into this one, but in real life, tax benefits are huge. If you made $100,000 from real estate and your friend made $100,000 from a job or maybe a business, you would end up keeping more money with real estate, way more money than your friend.
Now that we’ve got that down, let me show you how these Four Wealth Generators can make you a millionaire when combined.
Let’s say you bought a house for $100,000 and put down 20% ($20,000) so that you’re left with an $80,000 loan or mortgage. Because you bought a property with cash flow, let’s say you’re making $200 every month in cash flow, which is $2,400 per year.
You’re not a millionaire yet, but this is where it starts. After one year, you’ve made $2,400 in cash flow, your loan balance has dropped to $78,500, and your property has appreciated to $103,000. You’ve added $6,900 to your net worth. Not bad, right?
The cool thing is that this process speeds up over time. You start paying off more and more of the loan faster, and the value of the property goes up. By year 10, your property is worth about $130,000, but you only owe about $60,000 on it, giving you $70,000 in equity. Add in the cash flow you’ve made over the 10 years, and you’ve built $94,000 in wealth from that one property.
I know what you’re thinking: ” 10 years of work and I only made $100,000?
That’s going to take me a hundred years to get to a million dollars!” Well, here’s the cool thing: this is just one simple, cheap little property. Once you figure out how to do one deal, you can do another and another and another. And guess what? You don’t have to stay small with a $100,000 house. What if you bought a $500,000 small apartment complex or even a $500,000 house? The same principles apply over time. The value tends to go up, and the loan tends to get paid down.
As you pay off more of your loan every month and the value of your property increases, you’re getting wealthier. That is how you become a millionaire through rental properties. You buy cash-flowing rentals that increase in value over time while also paying down the loan bit by bit. You’re becoming wealthier.
Now, I can hear your concerns: “How do I come up with all these down payments if I’m going to buy a bunch of rental properties?”
In the beginning, maybe you’ll save up for the down payment, but honestly, I built my entire portfolio using creative strategies like house hacking, BRRR investing, using partners, raising private money, or even fixing and flipping houses to invest in rentals. There’s a lot of ways to put together a deal, but the bottom line is if you have a good deal, you’re going to figure out a way to finance it.
So, how do you know if you have a good deal?
You’ve got to learn how to analyze them! And what about managing all these properties? The short answer is: you don’t have to! For most of my properties, I hire a property manager to look after them. Sure, you still have to manage your manager, but they’re the ones getting the late-night phone calls, not you.
Lastly, what if the market drops?
That’s why I buy cash-flowing rental properties. If the market drops, great! I’ll just keep holding onto them and buy more properties because now everything’s on sale.
You can become a millionaire through real estate. I did it in under a decade. Yeah, it’s not going to happen overnight, but it will happen if you’re patient, stick to sound principles, and continually educate yourself on how to become better.
So, are you pumped and ready to dive into the world of real estate investing? Can you feel the excitement bubbling up inside you as you imagine achieving your financial goals and becoming a real estate millionaire? Well, it’s time to take the next step and chat with yours truly about your real estate dreams.
