Knowledge for the Individual Investor

Make a Million Dollars in Real Estate

What is the easiest way to make a million dollars?  This is an age old question.  Most people want to know what the fastest way to make a million dollars is.  The method described here is definitely not fast, however it is fairly simple.  On average, this technique will take between 10 15 years, and will virtually guarantee the accumulation of a million dollars.  Patience is a virtue, and you will definitely need patience for this strategy.  It is however  much faster compared to traditional long term approaches of saving in 401K and IRAs with targets of achieving a million dollar portfolio by the time you retire at age 60 or 65.  Lets discuss how one can achieve making their first million dollars in real estate investing.

Real Estate investing here refers to purchasing a home and leasing it out as rental property.  There are multiple benefits to investing in properties this way including cash flow from tenants, appreciation on the home over time, depreciation deductions, and tax benefits.  Also, it is always advisable to purchase investment properites with as minimal down payment as possible in order to maximize leverage.  This is where making your first million dollars comes in.  Leverage is essentially using other peoples money to purchase real estate, allowing the little money you put to grow exponentially.  For example, say you put a 10% down payment on a $150,000  investment home, and mortgages 90% of the value.  You would be putting $15,000 of your own money into the investment.  Now say you hold the home for 10 years, with average appreciation of 5% annually on the home price.  The gross profit in appreciation alone would be $95,000.  So essentially, you would of turned $15,000 into $95,000 over 10 years, but it gets even better.  Your tenants would of paid down your mortgage substantially over those 10 years as well.  This also doesnt include any cash flow received from tenants over the 10 years, depreciation deductions, and tax benefits either.  So this begs the question again, how do you make your first million in real estate?  How about borrowing a million dollars and having someone else pay off your debt!

In this scenario, the someone else is the tenant or tenants, and you are the one borrowing the million dollars.  For example, you could purchase one home each years over a ten year period in the $150,000 price range.  With each mortgage you would be borrowing greater than $100,000 of the purchase price.   By the 10th year, you would be have borrowed over a million dollars, and your tenants from your first few homes would of paid off a big chunk of those homes mortgages already.  Taking into account appreciation, cash flow, and tax benefits, you will actually reach a million dollars quicker than you might think.