How to Get Rich in Real Estate with Infinite Returns
tremendous wealth through smart real estate investments. Take Shark Tank’s Barbara Cocoran, for example — growing up, she and her nine siblings shared a two-bedroom flat with their parents. She’s now the self-proclaimed “Queen of New York Real Estate,” has a net worth of somewhere in the neighborhood of $80 million and lives in a penthouse on Fifth Avenue.
Now you might think that despite her humble beginnings, she must have worked really hard in school to become a success story. Not the case. Due to undiagnosed dyslexia, she earned straight Ds in her classes. But she had ambition and persistence, two skills that will get you very far in life. Within two years of starting her real estate business, she had half a million dollars in sales. And despite her then-boyfriend/business partner running off with her secretary and declaring, “You’ll never succeed without me,” she made her fairy tale come true — she learned how to get rich in real estate and got the last laugh.
Now, why am I telling you this story? To prove that it’s entirely possible for you to achieve your own success story. You don’t need a formal education, you don’t need a rich relative to leave you an inheritance, and you certainly don’t need a man to make money and build wealth through real estate investing. So how can you make money this way? Through a variety of avenues, including:
- Appreciation. If you buy a property at the right time (when prices are low), and the value increases, and you sell at the right time, then you will make a profit (capital gains). Sure, that may seem like a lot of “ifs,” but I assure you it’s far from a rare occurrence. If you’re in it for the long haul, you’ll often be rewarded—savvy investors will tell you that the longer you keep an investment property, the greater its value will grow. Real estate almost always appreciates in the long run. When searching for properties to invest in, I’d suggest researching the appreciation potential.
- Of course, while there is money to be made through capital gains, it’s also important to note the risks. First, it’s a formula you have to keep repeating over and over again — you have to keep buying and selling, buying and selling, and buying and selling, or the income stops. Second, if the real estate market takes a nosedive, “flippers”— people who buy a real estate property and quickly turn around and sell it for a profit — can get caught with inventory they can’t sell.
These risks lead me to my favorite type of real estate investment: cash flow through rental income.
- Rental income. Successful rental properties provide real estate investors with a steady cash flow — and as you know, cash flow is queen. Cash flow is realized when you purchase an investment and hold onto it. If you aren’t familiar with the concept, cash that flows in every month without you working for it is produced by investments, or assets, generating cash flow. That cash flow is also called passive income — it’s the primary focus in building infinite wealth. It’s literally the “secret” to how to get rich in real estate.
Just like in the game of Monopoly, your tenants will pay rent each month, and this rental income goes directly to you. It’s no surprise that choosing the right rental property and tenants will maximize your rental income and boost your returns. Once you have a positive cash flow from a property (one that covers your mortgage and any other expenses), you can use the monthly rental income to reinvest and expand your real estate investment business. Then, you’ll buy more properties and gain a positive cash flow on those, too.
Don’t limit yourself to only thinking about houses—you can buy apartment buildings, warehouses and office buildings too. Your goal should be to have a 100% return on your investment because once you’ve achieved that, you are playing with what I call free money. Why? You no longer have any of your own money tied up in the deal. You still own the property, you have your original investment back, and cash is still flowing to you each month. Now doesn’t that sound like the ultimate return? It’s actually an infinite return!
In fact, this is exactly how I’ve made my money: My very first investment was a little, two-bedroom house in Portland, Oregon. I made $25 a month in cash flow, but it was the sweetest $25 I ever made. Finding that little house instilled in me a love for the hunt.
Today, I own thousands of apartment units that make millions of dollars every year; but honestly, the fundamentals I use to invest in those units are no different than the fundamentals I used to find and buy that little house in Portland all those years ago. I look for properties that can be bought below market, that have the opportunity to be improved, and through those improvements, grow in cash flow and value. It’s simple but effective formula.
- Bonus depreciation. It’s almost as if our government wants to make it easier for you to figure out how to get rich in real estate. Thanks to the Tax Cuts and Jobs Act of 2017 (TCJA), landlords can deduct 100 percent of the cost of personal property they purchase for their business. Landlords can use this bonus depreciation to fully deduct the cost of personal property they use in their rental activity — including appliances, laundry and gardening equipment, and even furniture. This law changes again in 2023 (when it starts decreasing and will eventually be phased out by 2027), so now is the time to take advantage.
- Pass-through tax deduction. The TCJA created a new tax deduction for income earned through passthrough entities. Since most rental properties are owned by passthroughs — such as individuals, limited liability companies, partnerships, or S corporations — most rental property owners can benefit from this new deduction, which could result in thousands in tax savings. The amount of the deduction depends on a landlord’s total taxable income, and, for most landlords, the value of their rental property — it can never exceed 20% of a taxpayer’s total taxable income for the year.
- Ancillary services. Think back to the last time you stayed at a hotel—you were probably hit with a “resort fee” if they have a pool, and charges for the minibar if you had a late-night craving. This is how hotels make extra money — and another glimpse into how to get rich in real estate. Well, you can do the same as a real estate investor. If you own an apartment or office building, you could bring in extra cash by charging for covered parking spots or installing vending machines. Upgrading apartment units with new appliances and granite countertops could allow you to raise rent.
Content provided by Kim Kiyosaki