Wealthy people tend to see real estate very differently than less well-off individuals and there is often a significant variance in their returns as a result. Making money from real estate requires several different concepts that are easy to understand but difficult to implement successfully for many people. This article will provide some basic insight into making millions from real estate and how some individuals are able to do so, while others are not.
One of the most important concepts in real estate is leverage. Leverage involves borrowing money to make money. Real estate is expensive and when you purchase real estate you are likely taking out a loan in one capacity or another. Homeowners take out mortgages on their property. Investors can also take out mortgages on their property but also enter into other loans including multifamily loans, mezzanine loans, line of credit, etc. The amount of leverage that an individual has on their property will likely impact the return on the property. Generally speaking, mortgages are at interest rates that are low given the amount of the loan because the property serves as a backstop to the loss that a lender may have. If the borrower defaults, the lender gains access to the home which they can resell. Therefore the interest rate is much lower than other loans. Homeowners will often view the debt as a negative factor and will scrimp and save to repay their debt as quickly as possible. Individuals who want to make millions in real estate will view debt in a different way. Instead of prepaying debt early, they will attempt to expand their borrowings in order to increase the amount of real estate assets that they have which they can make money from through the rents collected or through the price appreciation on the property. Mastering using leverage on real estate is one of the best ways to make millions on real estate.
Those who are able to make a significant amount of money from real estate are also able to locate properties that have depressed prices for one reason or another and to successfully revitalize the value of the real estate. Real estate is always local and finding values in property often requires knowledge of the area where the real estate is located as well as the surrounding demographics. Sometimes this also involves working with contractors to rehabilitate a project so that it can be rented out or sold for significantly more money. Alternatively, it may involve developing unused property. Once the property has been developed it can either be leased or sold. Finding the right use for undeveloped property can be challenging and involves understanding the local market and demands of the surrounding community. However, developing unused property can be one way to make millions in real estate.
The underlying theme behind this article is that making millions in real estate involves using the greatest feature of real estate which is the willingness of banks to lend money to those looking to own it, in order to make millions. This can be done by increasing your leverage, by developing property, or by simply locating depressed real estate and taking advantage of the price opportunities provided.