Dear Happy Investor, real estate investing is one of the best long-term strategies to achieve financial independence. It is not the quickest, but it surely is one of the most certain. In this article, we will discuss in-depth how to get rich with real estate. You will learn about 5 proven strategies. Each strategy is different. Some are time-consuming, while others are passive but do require more patience.
While reading this article about how to get rich in real estate, please keep in mind that diversification is crucial. Don't invest all your money in real estate, unless you are a god at it. I always recommend building a diversified portfolio with among others stocks, real estate, ETFs, and alternatives.
Ready? Let us begin!
- Buy and Sell Real Estate in the short term
- Buy, renovate and sell dilapidated or old property (or build one yourself)
- Buy properties, find tenants and rent out for cashflow
Simply put, there are two ways for getting rich with real estate. The first way is by passive investing in real estate funds. And the other way is to do all the work yourself. Both ways are forms of investing money, and both have their advantages and disadvantages. Personally, I am in slight favor of passive investing in real estate, although it is true that you get rich with real estate faster if you do the work yourself.
Passive investing in real estate results in a lower yearly return of approximately 5 – 9% in comparison to do it yourself. However, it is also less risky and time-consuming. It requires no knowledge as well, making it a perfect investment for investing newbies.
If you have more money and knowledge, it is reasonable to do the work yourself and get a higher yearly return. Another major benefit is that you acquire ownership of assets that bring in cash flow, if you buy/build a house yourself.
Let's first look at how to get rich with real estate by buying or building houses and apartments. Because here you have three options, namely:
- Buy real estate and resell it within a short time frame
- Buy and renovate dilapidated houses, or build one yourself
- Buy properties, find tenants and rent out for cash flow
Think about these options. How would you approach them?
Below I'll give you tips that you can consider if you want to get rich with real estate by buying/building houses and apartments.
An advanced way of getting rich with real estate is to buy up and resell properties, houses, and apartments. This can be done for commercial properties such as a small warehouse for small business owners, and for private houses and apartments as well.
Although this is a good way to get rich with real estate, there is also a downside. To successfully buy and resell real estate, you will need to have a lot of (market) knowledge and skills. It is also a more time-consuming activity because you need to look closely at market deals or even off-market deals in search of bargains.
Another necessary quality is by being very well informed about the housing market. You need a long-term strategy where you follow the housing market for years. The best way to get rich in real estate is to buy houses and apartments in low economic times. This means when the economy is doing badly.
Buy real estate just when the economy is starting to pick up. Take for example the housing crisis of 2009. Obviously a rare outlier. But the fact is that after a recession or even economic crisis, there is always a way up. This approach will take years, but if you prepare it well then you can earn a lot of money. The downside is that you wait too long and miss all great opportunities.
A final tip is to look at online auctions for real estate. It sometimes happens that people can't pay for their house anymore. They are forced to put their house up for auction, so you can buy a good house for a bargain price. That is if you feel (emotionally) comfortable buying houses from bankrupted humans.
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Getting rich in real estate by buying and selling houses is not that simple. It requires good insight into the housing market and you also need to be able to determine what the value of a house is. Moreover, there is a lot of hassle involved in buying and selling houses. This is no different from this second method of getting rich with real estate.
We are talking about buying up old or dilapidated real estate. Think of a ruin that has been empty for years. You buy the ruin, you renovate it and then you sell it for a big profit. They call this method Flip- a-House. It involves buying a house that looks neglected, but which is fairly easy to fix up. Then you can resell it for a nice profit.
My best advice for getting rich with the Flip-a-House tactic is location. Real estate is all about location. Do you know a particular trendy neighborhood where they are building new houses, schools, and businesses? Or better yet, do you know the future plans for such a newly built neighborhood? In that case, you have gold in your hands.
Buy cheap houses in booming neighborhoods and renovate them. Then you can sell them with big profits (more than 50,000 dollars at least). If you can't do it yourself you can just hire some handymen. Your profit will be less, but you also have less work to do.
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The above tactics to get rich with real estate are time- and effort-consuming. Luckily, there is an easier way. However, as you might already know, easy means you will get more slowly rich.
That is, if something is easy, more people will do it so there is more competition. Also, this method is much less risky. And lower risk usually means lower profit potential (not always).
The third way to get rich with real estate is to become a landlord.
Renting out real estate is a safer way to get rich slowly. There are three essentials to consider when you wish to become a landlord.
The first is that you need money for a down payment to invest in a house.
The second thing to consider is that you need to do solid preliminary research. In the preliminary research, you will need to determine the cost calculation to define your potential return on investment. A total return of 9 – 11% percent per year should be possible.
The third factor is the rental vacancy. You have to be sure that you can rent out the property as much as possible, and preferably to a friendly tenant. After all, every month that your property sits empty costs you a lot of money.
Fortunately, there is another way to get rich with real estate in a safer way and with less risk! I will explain all of it below.
The summary of the above is that you can get rich with real estate if you have a lot of knowledge and are willing to work hard(er). The advantage of this is that you will get rich on a relatively short-term of 5 – 10 years (that is short-term for me). The downside is that you will need knowledge, skills, time, and sometimes higher sums of money for down-payments.
If you don't have all of this, you must look for another way. That is: let people work for you. This method won't make you rich in the short term, but it does in the long term of 15 – 30 years. And there are some great advantages of this method, which involves no need for knowledge and skills. You also don't need a lot of money upfront. And there will be less hassle because everything will be taken care of by real estate experts.
I will explain.
When I was a totally investing newbie, I've started with putting my money in a non-listed real estate fund.
A non-listed real estate fund is suitable for lazy investors who have the patience to let money work for them. In Europe, there are some excellent non-listed real estate funds such as SynVest and Corum Investments. They invest in real estate worldwide or just in Europe.
As an investor, you only need to transfer your money to the non-listed real estate fund. In return, you will receive a monthly dividend. The total yearly return varies between 5 – 8,5%, depending on the chosen fund.
Let's say that you invest a larger sum of money: 20.000 dollars. With 7% dividend, you will receive 20.000 * 0.07 = 1400 dollars every year (before taxes). Over 10 years, that's 14.000 dollars (before taxes). And you get your initial deposit back if desired. So in 10 years, you could gain 34.000 dollars with a single investment.
The trick is to continuously invest money into non-listed real estate funds. Invest smaller amounts of money that you don't need in the long term. And do it only with money you can afford to miss. If you continuously reinvest your dividends, you will have a significant amount of money in 10 years. And after 20 years you might never have to work again.
Another piece of advice is to diversify. Don't put all your money in non-listed real estate funds. Also invest in alternatives, such as stocks, ETFs, P2P Lending, et cetera.
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Next to non-listed real estate funds we also have listed real estate funds. We call these REITs.
REIT stands for Real Estate Investment Trust. This is similar to a non-listed fun, apart from the difference that REITs are publicly traded. That means you can invest in REITs through an investment account.
REITs are (in most cases) riskier than investing in non-listed real estate funds. That is because they have stock volatility as well. Yet, higher risk also means potentially higher returns as compensation.
With REITs, you could get an average yearly return of 9% to 14%. Of course, you do need the right knowledge for this to avoid costly mistakes. Besides potential higher returns, a REIT is also more flexible in terms of liquidity. With real estate funds, you have to deal with exit costs if you want to get out early (within three years). With a REIT you can buy and sell much faster, without exit costs. This means that you can withdraw the money from the real estate market more quickly in worse times.
REITs can be interesting for those who want to invest more in both the short and long term in the real estate market. One reason for this may be because you want to take advantage of the real estate market cycle. This is the cycle of when things are going really well, and when things are going really bad in the real estate market. If you are very good at market timing, you can take maximum advantage by buying REITs in the dip. Most REITs can be found in America or Asia. A final tip here is to invest in REITs ETFs so you have the right diversification to reduce risk.
We have basically looked at two different ways on how to get rich with real estate. In one method, we do all the work ourselves. This involves going into the housing market and look for gems that we can buy, fix, and resell or rent out. This requires time, energy, knowledge, and, in most cases, a lot of start-up capital. Conversely, the advantage is that you can make bigger profits. If you have knowledge of the housing market, and you have a lot of money, this might be the best way for you.
Another way to get rich with real estate is by investing in (non-listed) real estate funds. This is one of the best options for investing with less risk. Unlike above, with real estate investing you will spend little time and energy. Also, you need less knowledge of the real estate market and you can start with as much as 100 dollars per month.
In short, this way of getting rich with real estate is much more accessible for most of us. It also involves less risk and work. Conversely, a disadvantage is that you will need more patience and time to get rich with real estate.
If you are not willing to work and learn then you should go for non-listed real estate funds. However, if you are eager to learn and work hard, you could get more profits by investing in REITs or buying real estate properties to sell or rent out.