How to Build Wealth with Real Estate

  • May 31, 2024
  •   •  
  • 4 min. read time
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What do you think of when you picture a real estate investor? Is it a Donald Trump type in a snazzy suit sitting high up in an ivory tower?

You may not realize it, but anyone who owns a home is technically a real estate investor—which means the title is up for grabs for just about anyone. You simply have to know how to get started. 

Investing in real estate doesn’t have to be hard, and it doesn’t have to be stressful. There are a few paths to building wealth through real estate. You can simply occupy your primary residence long term and watch it appreciate as you go about the activities of daily living.

You can also purchase multiple single-family homes that generate cash flow through passive income. There are additional strategies that involve fixing up homes and selling them quickly, as well as buying properties with a long-term investment outlook in mind. 

In any case, real estate offers the potential to increase your net worth. And this type of wealth can be passed on (as can the properties) for generations to come. 

So let’s jump into how to build wealth with real estate. 

Property Appreciation

One of the easiest ways to build wealth through real estate is through property appreciation. In areas with high growth potential, the value of single-family homes that you invest in can increase over time. Of course, nothing is a sure bet, so it’s important to conduct thorough research and due diligence to identify neighborhoods poised for growth. 

A real estate agent can help you with this. If possible, it never hurts to talk to another real estate investor or expert in property management who may be familiar with the ins and outs of real estate and with your desired neighborhood(s) as well. 

Property appreciation is a great way to build wealth, whether you simply own the home you live in or invest in multiple single-family homes.

The key to taking advantage of property appreciation is understanding that investing in real estate is often a long-term endeavor. That’s because, like everything else, the single-family home market can be cyclical with many ups and downs. But those who stay in it for the long run generally reap the rewards of a successful real estate investment once they are ready to sell. 

Rental Income

Purchasing multiple single-family homes—either all at once or one at a time—allows a real estate investor to generate rental income from tenants.

This strategy can quickly amass a steady and sometimes significant stream of passive income that not only covers the properties’ mortgage payments and property management and maintenance costs but also lines the real estate investor’s pocket with cash. This is a win-win, as a predictable cash flow can do double duty, sustaining the real estate portfolio while increasing the net worth of the real estate investor.

Leverage

Leverage is a powerful tool for a real estate investor looking to maximize their returns and wealth accumulation. 

Holding mortgages on rental properties allows a real estate investor to control a property’s full value with only a fraction of the investment. This means your returns (profits) can be amplified because any appreciation in the rental properties’ value is calculated based on their total worth, not just your initial investment (down payment and the monthly payments you’ve already made). 

Leverage goes both ways, though, so if your property goes down in value, you could be on the hook for more than it’s worth. That’s why it’s crucial to do your due diligence and mitigate risks associated with market fluctuations.

Tax Benefits

This is often an overlooked perk for a would-be real estate investor who is just starting to learn about how to build wealth with real estate. The interest on mortgage payments, property taxes, and certain property management expenses can be tax deductible. Any tax benefit can positively impact your return on investment (ROI) and, therefore, your net worth.

Flipping Properties

Living in your primary residence long term and watching it appreciate in value is a great form of investment, as is purchasing single-family homes as rental properties and collecting rent checks. That’s passive income.

For the more active real estate investor, there’s the strategy of flipping properties. 

Being a flipper involves purchasing properties that may be discounted due to the previous owner’s financial constraints or deferred maintenance. A real estate investor can then renovate/restore these properties and sell (flip) them for a profit.

Flipping isn’t a guaranteed win, however. It requires a deep understanding of the real estate market, in addition to home construction and project management. Markets can turn, and costs can fluctuate. That doesn’t mean you can’t build wealth through flipping, but it can take some legwork and, in many cases, some expertise. 

Buy and Hold

On the flip side (no pun intended), embracing a buy-and-hold strategy allows a real estate investor to capitalize on the long-term appreciation of rental properties.

Investors can benefit from both property appreciation and rental income by acquiring single-family homes or other rental properties and holding on to them for an extended period. Over time, this can really boost your net worth. 

You do have to keep in mind that these properties will require long-term care. This may include hiring a property management company or managing these properties yourself, which can quickly turn into a full-time job, depending on how many properties you own. 

Real Estate Can Bring Long-Term Wealth

Building wealth through real estate can certainly be done. In fact, it’s done every day by investors big and small.

There are young professionals with the main goal of wealth accumulation. There are retired couples who simply want to enjoy passive income. And, yes, there are private and publicly traded real estate investment trusts (REITs) that play the game, too. 

Though the size and expertise level may vary, these individuals and companies throughout the country all have one goal in mind: wealth accumulation. And they’ve found a great way to build wealth with real estate.