{"id":1414,"date":"2019-08-01T23:06:00","date_gmt":"2019-08-02T03:06:00","guid":{"rendered":"https:\/\/www.beingbobblog.com\/?p=1414"},"modified":"2019-11-12T21:29:40","modified_gmt":"2019-11-13T01:29:40","slug":"how-to-really-become-a-millionaire-through-real-estate","status":"publish","type":"post","link":"https:\/\/beingbobblog.com\/happy-holidays\/how-to-really-become-a-millionaire-through-real-estate\/","title":{"rendered":"How To Become A Millionaire Through Real Estate (Really)"},"content":{"rendered":"

\"pexels-photo-186077-1200x818\"<\/a><\/p>\n

Real estate can make you a millionaire.<\/p>\n

Sure, this might sound like the promise of a late-night television salesperson trying to get you to attend the latest \u00e2\u20ac\u0153free seminar,\u00e2\u20ac\u009d but the reality exists: real estate is a powerful wealth building tool that has made millions of individuals millionaires.<\/p>\n

Could you be next?<\/p>\n

Maybe \u00e2\u20ac\u201c but here\u2019s the catch: not everyone who buys a piece of property becomes rich. In fact- many people buy real estate only to find stress and empty bank accounts. They struggle for years and years but never build the kind of wealth they\u2019ve dreamed of (or the riches promised by the late night TV guru.)<\/p>\n

So \u00e2\u20ac\u201c how does someone use real estate to truly become a millionaire?<\/p>\n

As I discussed recently in the longest article I\u2019ve ever written, How to Become a Millionaire, there are four primary \u00e2\u20ac\u0153wealth generators\u00e2\u20ac\u009d at play when you invest in real estate, depending on the strategy you get into:<\/p>\n

Cash Flow.<\/strong><\/em> This is the extra income you\u2019ll get to keep each month (or year) that you own the property. Cash flow can be deceptive because it fluctuates when certain repairs are higher or lower in different months, so it\u2019s important to factor in non-monthly costs like vacancy (the amount of time the property sits vacant), repairs, capital expenditures (expensive projects that need to be replaced on a home every so often, like appliances, roofs, windows, plumbing, etc.), along with the regular expenses (utilities, management, etc.).
\nAppreciation.<\/strong><\/em> When the value of a property increases, we call this \u00e2\u20ac\u0153appreciation.\u00e2\u20ac\u009d While appreciation is not always guaranteed (just ask people who bought in 2006 and sold in 2010!), over time, historically, real estate has always increased in America, averaging 3% per year over the past century. Another type of appreciation that can come into play is known as \u00e2\u20ac\u0153forced appreciation,\u00e2\u20ac\u009d the concept of increasing the value by physically improving the property.<\/p>\n

Loan Pay-down.<\/strong><\/em>\u00c2\u00a0 When you buy a property with a mortgage, each month your loan balance decreases. This means, over time, your tenant is essentially paying the loan down for you, helping you build wealth automatically. To make this concept clearer, pretend for a moment you owned a property that you bought for $1,000,000 with a mortgage for $800,000, and it made $0 in cash flow (it \u00e2\u20ac\u0153broke even\u00e2\u20ac\u009d) and never climbed in value. However, after that thirty-year mortgage is paid off, you\u2019ll now have a property worth $1,000,000 that you didn\u2019t actual save for. Your tenant paid it off due to the \u00e2\u20ac\u0153loan pay-down.\u00e2\u20ac\u009d<\/p>\n

Tax Benefits.<\/strong><\/em> The final wealth generator from real estate are the tax benefits associated with owning property in the United States. The U.S. government likes real estate investors and uses the tax system to encourage our purchase and leasing of properties. From extra tax write-offs to the lack of \u00e2\u20ac\u0153self-employment tax\u00e2\u20ac\u009d to the 1031-exchange and more, real estate investors can pay significantly less tax than other business owners, using the extra cash to buy more properties or pay of the loan faster \u00e2\u20ac\u201d helping to build greater wealth.<\/p>\n

Of course, just buying some real estate will not give you all of the above benefits. Different strategies in real estate will give you different benefits. For example, when you \u00e2\u20ac\u0153fix and flip houses,\u00e2\u20ac\u009d you are most likely not paying off a loan, thus you will not get the benefit of the \u00e2\u20ac\u0153loan pay-down\u00e2\u20ac\u009d nor are you getting cash flow or many tax benefits. Instead, flipping relies mostly on the \u00e2\u20ac\u0153forced appreciation\u00e2\u20ac\u009d you get by fixing it up.
\nRecommended by Forbes<\/p>\n

One of the reasons I love buying rental properties so much is because they may capitalize on all four of the wealth generators \u00e2\u20ac\u201d if you buy it right. Let\u2019s use a quick example:<\/p>\n

Jenny wants to build wealth through rental properties. So Jenny finds a duplex for $250,000 in her neighborhood. After running a careful analysis, she determines that it is a good deal. Jenny uses a $50,000 down payment and obtains a 30-year loan for $200,000. Combined, both units bring in $3,000 per month, but Jenny\u2019s expenses average just $2,500 per month, leaving her with $500 per month in cash flow, which increases each year as rents climb with inflation. Although that income is taxed, she doesn\u2019t have to pay any because of the depreciation deduction she gets on the property, thus part of the tax benefits of owning it. Over the next 30 years, the value of the home increases to $600,000 (a 3% per year increase due to appreciation). Finally, each year during those 30 years the loan has been paid down, and Jenny owns the duplex free-and-clear. She now has an asset worth $600,000, plus she\u2019s making thousands per month in cash flow.<\/p>\n

This example above is not \u00e2\u20ac\u0153pie in the sky\u00e2\u20ac\u009d numbers \u00e2\u20ac\u201d these are real life options when you buy the right deal and utilize all four of the four wealth generators. Imagine what Jenny\u2019s net worth would be after 30 years if she had purchased two duplexes \u00e2\u20ac\u201d or four, or twenty of them early on.<\/p>\n

Now, of course, no one wants to wait 30 years to become a millionaire. So how do you speed up this process?<\/p>\n

Well, there are a few ways you could speed this up:<\/p>\n