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How to make millions by investing in one property

How to make millions by investing in one property

You can make millions by investing in one property but it has to be the right property. In 1963 the median house price in the USA was $17,800. By 2019 that figure had climbed to $324,500 according to the US Federal Reserve Bank. An annual average house price increase of 5.32% and that includes the terrible real estate crisis of 2008/9.

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This means that if you were to purchase your first home for $220,000 (well below the median) with a 30-year mortgage by the time you had paid it off the value of your home would be a little over $1 million dollars! ($1,041,713 to be exact).

But how can you make millions – with the emphasis on the plural form of millions – by investing in one property. It would also be nice if we could do it faster than 30 years as well. The answer is that you can make money by investing in one property at a time.

One thing we say about real estate investing for beginners is to know your market and consider the appreciation. When you invest in real estate you need to evaluate four important factors.

  • 1. Cash flow: When you make your purchase of a property you want to make sure that the cash being generated by that property is going to be cash flow positive. This means that you are earning more than you are spending on the property. If you are charging rent you need to make sure it is high enough that it covers all of your expenses. You also need to be banking some of this income because expenses can fluctuate – repairs, vacancy, regular maintenance and upgrades over time.

  • 2. Appreciation: This is the 5.32% average rate at which properties in the USA increase in value over time (for the past 50+ years). Keep in mind that this is the average rate for the entire country. It is certainly possible to find areas that are increasing at a higher rate.

    Factors that influence the rate of appreciation include the quality of the neighborhood. Are there good schools in the area? Is there a hospital near- by? Perhaps most important, are there new jobs being created in the neighborhood that will entice families to move into the area? The answers to these questions will impact both the sale price of the property and the re-sale price

    You can also force the rate of appreciation to increase by making improvements to the property. For example: building an addition to the home. If the lot is empty you can build a house, or an office tower, or a hotel. Upon completion of these improvements the value of the property is dramatically increased. This can be how to earn your millions, and is a strategy employed by many of the house flippers that you see on HGTV.

  • 3. Loan pay-down: When you buy a property with a mortgage your loan balance decreases each month. Essentially your tenant is paying down your mortgage for you because of the rent that they pay you (remember you are cash flow positive). Let me illustrate this with a simple example

    Suppose you bought a $1,000,000 property and have a $900,000 mortgage amortized over a 30-year period. Suppose also that the property was rented out and made $0 in cash flow (meaning that you broke even versus expenses but made no profits).At the end of your mortgage you would have a $1,000,000 property free and clear and this assumes that there was no appreciation over the past 30 years (which is, quite frankly, impossible). Your tenant would have paid down your loan.

  • 4. Tax benefits: In the USA real estate investors can pay significantly less tax than other businesses. There is the lack of self-employment tax, and numerous tax write-offs to off set your expenses. There is also the 1031 exchange when you sell the property. The 1031 allows you to defer the capital gains tax so that you can plow your profits into another income producing property.

So how can you make millions by investing in property? It means purchasing the right property and make sure you are on the right side of the above 4 factors. You can speed up the process of reaching a million dollars in the following ways:

    Get a better deal. Find a property that is undervalued and purchase that one. It will appreciate at a faster rate.

    Buy more deals. Don’t limit yourself to just one property. Look for multiple deals that satisfy the 4 factors.

    Buy in appreciating areas. Look for areas of the country that are ‘gentrifying’ or that are improving.

    Force appreciation. Increase the value of your property by making improvements to the real estate. Update the kitchen, add a bathroom, finish the basement, fix the landscaping to up the curb appeal, etc.

    Trade up. Every couple of years sell your property and purchase a bigger and better piece of real estate.

Real estate is one of the very best ways to answer the question of how to make millions. So long as you focus on the 4 key factors to successful real estate investing. Cash flow, appreciation, loan pay-down and realize the tax benefits that come from investing in real estate you will be well on your way

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