RE: How do millionaires make money in real estate so quickly?

1 Answers

They key with getting rich quickly in real estate is a couple of things:

  1. Positive cash-flow
  2. Investing in areas where appreciation rates are fast and high
  3. Building a portfolio – which basically means investing over and over again, see the snowball method:

Snowball Method A: Use Cash Flow to Buy More Properties

Some of the most successful real estate investors use this strategy. Warren Buffet is just to name one example. The key to this strategy in real estate investing is to use the cash flow you make from your rental properties to purchase more rental properties. As you accumulate more rental properties, the cash flow would constantly keep increasing, making the time to save up for another property shorter and shorter…hence the snowball effect! Your “snowball” (or moneyball, rather) starts getting bigger and gaining more speed.

For example, let’s say that you have a rental property that generates a $500 cash flow every month after expenses. It’s a slow start but you’ll be generating an extra $6,000 a year. And let’s say it takes $25,000 cash for a down-payment on a new property. Then in about four years, you’ll be able to purchase the new property for real estate investing. Now, you’ll be generating $1,000 in cash flow ($500 from each property after expenses). With that, you’ll be able to purchase a new property in two years, rather than four – and so on.

This is a short example with little cash flow, just to show you the possibility of this snowball method in real estate investing. With mortgages and more cash flow, you might be able to generate more cash flow and be able to increase your money in an even shorter amount of time.

Now, the key here is to not use your cash flow. You use it only to save up for another investment as much as possible. This takes lots of willpower and other sources of income. But, it’s almost guaranteed that if you do save the cash flow, it’ll be worth increasing your money!

Related Articles: Real Estate Investing for Retirement

Snowball Method 2: Use Cash Flow to Pay Off One Mortgage at a Time

Another way you can use the snowball method is to use the cash flow to pay off one property at a time. That way, you pay off your mortgages pretty quickly. The key is to focus on paying off one property at a time if you already have more than one property. If you buy properties that are under market value, this technique will work even better. And then, once a mortgage is completely paid off, you’ll be making more cash flow because you have one less mortgage to worry about. Once you’ve accumulated multiple properties, you’ll be able to pay off one mortgage a year, then two, and so on.

This technique works better for some—as opposed to buying more properties with the cash flow—because many banks limit the amount of loans you can have. So, this will give the advantage of having fewer mortgages in your name. Consequently, you’ll have an advantage with banks since you’re able to pay off your loans quickly. This technique can also help you pay off your mortgages before the interest rates go up.

When you’re first starting, it’s nice to have other sources of income coming as well because this also requires you to use as little as possible from the cash flow for personal use. Ideally, you’d want to use up all the cash flow to pay off the rental properties. With that, you’ll be better able to make money from real estate investing in the long run. This might take up longer than the first option, but the trade-off is only having one mortgage at a time to worry about.

Source: The Snowball Method in Real Estate Investing

These are cycles that investors follow to get rich:

1. Fix and Flip

The first answer to the question how to get rich in real estate is for those who are not looking forward to becoming landlords by renting out their income properties for an indefinite period of time. Instead, it is for those more dynamic individuals interested in short-term investments and who like to buy a property, fix it, and then flip it – i.e., resell it for a price higher than the price they purchased it for. The trick is to identify a property which requires only minimal – and cheap – fixes to maximize its value.

After you manage to sell your first fix-and-flip income property, with the profit you can buy a new better (more expensive) property which will bring you an even higher profit after you resell it. Then, with the profit from the second property, you buy a third one. In other words, you enter into a cycle of fixing and flipping which should generate you more and more money over time. Once you’ve made enough profit, you can even start buying two fix-and-flip properties at the same time. Or you can use some of the money to buy a rental property that you will rent out to tenants. But be careful! Fix and flip is not for anyone. It requires an investor who is willing to put a lot of efforts and time into this investment. It is more of a full-time rather than a part-time, second job.

Related: 5 Tricks to Save On Fix-and-Flips

2. Positive Cash Flow to Pay Off Mortgage

Maybe fix and flip does not sound like your road on how to get rich in real estate? If you are not this dynamic type of person and would like to buy rental propertiesthat you keep for at least a few years, then you should always aim for such properties that generate enough cash flow to pay off their own monthly mortgage payments.

Ideally, they will bring you even more than the amount of the loan repayment so that you can quickly save up some money for a down payment on another income property. With the second property, you again aim at positive cash flow. With the positive cash flows from your now two rental properties, you will need less time to save up for a third income property. And so on and so forth. In this manner, in several years you could own a sizeable, diverse portfolio of real estate investments.

3. Positive Cash Flow to Pay Off Mortgage on Another Property

The next method of how to get rich in real estate is somewhat related to number 2. In this case, if you have a rental property the mortgage for which has been already paid (or which you purchased in cash), you use the positive cash flow from this property to save up a down payment for another property and then to pay off the mortgage of the second property.

Related: Buy a rental property using a mortgage or cash?

4. Paying Off Mortgage Early

To apply this technique of how to get rich in real estate, after you buy your first rental property, you should quickly buy another property, and then another. The idea is that you accumulate a few income properties over a relatively short period of time. Then you apply a snowball effect. So, you use the rental income from all your rental properties to pay off the mortgage on one single investment propertyat a time.

Obviously, the more properties you own and the more income you get from each of them, the faster you will be able to pay off your first mortgage. Once you are done with the repayment of the first mortgage, you start repaying the mortgage on the second property. Repaying the mortgage of every following income property will be easier and faster as you will have one less mortgage payment in total. In order to be particularly successful in this method of how to get rich in real estate, you should aim to always purchase investment properties that are under market value and that offer great cash on cash (you should aim for 20% at least). Paying off a mortgage early gives you the benefit of being able to purchase another property with a mortgage as many banks limit the number of loans you can take at any point in time to anything between four and ten.

Related: What is a Good Cash on Cash Return?

These are four of the most widely used ways how to get rich in real estate. In all these cases, there are a few basic rules you should try to follow in order to be successful in real estate investing:

A Few General Recommendations On How to Get Rich in Real Estate:

  • Look for properties that are selling under market value. This will allow you to get better returns on your investments.
  • Search for income properties that will provide you with significant cash on cash return – at least 20%.
  • Make larger down payments – 25%-40% – as this will save you a lot from the interest you will have to pay on the loan.
  • Take loans that allow you to remortgage (switch to a new mortgage deal) and make overpayments without penalties. This is of crucial importance especially if you plan to pay off one mortgage at a time.
  • Try to buy (at least) one property every one-two years. Yes, it does sound like a lot, but don’t forget the snowball effect – purchasing any new investment property will be easier than the previous one.
  • Start early. While not many people can afford buying real estate properties in their 20s, start as early as possible. Start small; your first purchase does not have to be a multi-family home. The earlier you start, the more time you will have to enjoy the money you will make in real estate investment and to secure your retirement.

In your search for the best US cities, neighborhoods, and real estate properties on your journey in how to get rich in real estate, don’t forget to check out Mashvisor for various metrics and analytics.

Source: How to Get Rich in Real Estate: 4 Different Cycles

New Member Answered on August 20, 2017.
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