Are you wondering how you can become a billionaire in real estate? If YES, here are 8 steps to become a billionaire in real estate in 2023. A good number of people dream of becoming a billionaire. However, few people actually make it happen. That is because, in order to become the richest person in the room, you are expected to change not only your mindset but your outlook for the future.
A real estate mogul is simply an entrepreneur who has built a massive real estate empire by actively or passively investing in real estate. It is no surprise that real estate moguls are among the richest billionaires in the world who own hundreds of commercial and residential properties.
Note that the big benefits of real estate investing are passive income, stable cash flow, tax advantages, diversification, and leverage. Passive income is the income you can continue to survive on, even if your other investments go south. So how do real estate moguls make so much money?
In this generation, we attribute property to wealth so much that the term “real estate” means real property. Real estate remains a wealth-building tool for the majority of moguls. Reports have it that an estimated ninety percent of millionaires were created through real estate investing.
Any billionaire in the U.S. or anywhere around the globe that you know of has invested in real estate in some form or the other. An average real estate investor can also become a mogul by getting the necessary skills and learning how to craft a successful investment strategy.
Most individuals who invest in real estate believe the only option they have is to either sell a house or rent one out. However, the real estate market has diversified in recent years, opening up a whole slew of intriguing opportunities to invest in. You can flip houses, invest in exotic real estate options, and even diversify into purchasing turnkey rental properties or invest in other passive investments.
Steps to Become a Billionaire in Real Estate
Note that having a crystal clear concept can turn a strategy into reality, especially for first-time buyers who intend to start investing in rental property. Although it may take you a decade or so, the efforts are worthwhile. Nonetheless, these steps below will guide you in setting up a visionary plan to become a real estate mogul.
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Create a Good Business Plan
Have it in mind that a good business plan is the first step in becoming a real estate mogul. Putting together a solid business plan starts with defining your mission and vision statement. It is tough to move forward successfully without any concrete planning, and the same is true in the case of becoming a successful real estate entrepreneur.
Don’t start by acquiring fixer-uppers and ripping out the walls. You require a concrete, long-term business plan. This is true whether you want to get wealthy via fix and flip, traditional real estate development, or a buy and hold strategy.
It is not enough to choose how you intend to find or afford to buy properties. How much does it cost to perform various renovations, and how will you keep costs down without sacrificing quality? How will you market them? How will you sell them or find paying renters fast enough to maximize your profits?
Understand your exit plan before you buy anything. Ensure, to be honest about your abilities and interests. Chalk out your strengths and weaknesses. Don’t build a business plan that relies on you working for free to renovate properties. You need to hire people for that and learn to oversee the affairs.
Locate Sustainable Real Estate Markets
Note that a good business plan for becoming a real estate mogul will fail if you are dealing in declining real estate markets. Take Detroit for instance, you might find cheap houses there and you may even be able to rehabilitate them to the point where they are legal to rent out.
But you cannot turn a working-class home into a luxury property and charge several thousand dollars a month for it. Remember that a real estate market that is experiencing a bubble is a poor place for real estate investing. What are the characteristics of sustainable and growing real estate markets?
- It has a balanced supply of housing relative to demand.
- Housing demand is sure to increase due to a strong local economy.
- A good way to find sustainable housing markets is to find locations with a growing population and home prices that are growing at or just above that rate.
Ensure to do your research regarding real estate markets. Then pick one in which you can repeatedly implement your business plan. This lets you build up your network faster since you are relying on the same lenders, real estate agents, property managers, contractors, and other real estate professionals.
Narrow Down Your Scope
We all know that location is the most important thing in real estate. However, if you intend to become a real estate mogul, it isn’t enough to find a great real estate market, whether you are looking at a general metropolitan area or a specific suburb.
Note that you will want to find the best neighborhoods for investing, whether you are buying and holding rental real estate, buying and developing land, or fixing and flipping. According to experts, the best way to determine which neighborhoods are a good fit is by calculating the housing affordability index. Do your research regarding the local rules applied to rental properties.
- Do you need to get a rental license from the city?
- Will you have to arrange annual inspections of multi-family housing?
- Are short-term rentals restricted or prohibited?
- Does the city or state impose rent control?
- This can prevent you from earning a profit if interest rates spike.
- Are there areas you’d want to avoid because of the applicable regulations?
Always remember that the time and effort you spend doing this research will be recouped once you have bought several properties. And you should invest the effort upfront because you will be dealing with these rules over the long term. Don’t forget that real estate investing should be slow, if you want to mitigate risk and maximize your returns.
Build Your Real Estate Team
Another reason it is advisable to focus on a specific area is that you can work with the same professionals again and again. This limits the need to vet building contractors and investors before any deal, and it results in smoother transactions as you get to know each other.
Note that every potential real estate billionaire needs to have a vetted network of real estate agents, real estate attorneys, property managers, building contractors, and financial service providers before they get to work. Know and understand who you would likely use to secure a property and manage it before you tour the property.
Consider starting with lists of recommended service providers before you buy your first investment property. Expect to narrow down the list as you gain experience. For instance, you may strike a contractor off your list when they stop in the middle of your renovation to work on a higher-paying project.
Acquire Your First Investment Real Estate
Indeed, a journey of a thousand miles starts with a first step, and so does wealth building through real estate investment. You have to start with one real estate asset at a time. Don’t worry about buying ten properties in ten months.
- Do your due diligence.
- Line up your potential team members.
- Then find your first investment property.
- Arrange real estate financing.
- Buy the property.
- Make any necessary repairs, or build what you were planning on building.
- Either find renters or list them on the market so you can sell them for a profit.
Ensure to complete the process according to your business plan. This is necessary to your success since the aim is to have a known, repeatable process from start to finish. For instance, it doesn’t matter if you can buy and renovate ten homes in ten months if you can’t figure out how to sell them for a profit.
Step Back and Evaluate Your Investments
Let’s imagine you have acquired, renovated, and flipped the first investment property. Did you clear a profit? It is wonderful if you did, but it can still be considered a valuable learning experience if you didn’t.
- Why did you go over budget on the initial acquisition or the property renovations?
- Be honest when evaluating your mistakes.
- Did you fall in love with property instead of evaluating it from a business perspective?
- Did you make the mistake of getting into a bidding war, wiping out your profits?
- Did you overbuild?
Note that this mistake could take the form of building a luxury home in a middle-class neighborhood or putting amenities in a working-class neighborhood that buyers can’t or won’t pay for. If you are barely making a profit, determine what you could do to improve the cash flow.
After you must have identified your mistakes, adjust your process. Then test the process by buying your second investment property. Run through the process from purchase to sale or handing the rental property over to a property management firm. See if you can buy it for less, renovate it faster, and find a qualified tenant faster.
Step Back and Wait
Note that becoming a real estate billionaire is not a day job but a long journey spanning many years. Give yourself a rest for a couple of months. Analyze your business operations, wealth accumulation, cash flow, and debt.
- Verify that your property managers are keeping the renters happy before you add to their workload.
- Save the money you are receiving in rent for property taxes, insurance premiums, and other upcoming bills.
- At a minimum, save up enough money to avoid hard money loans used to repair your next investment property.
- Verify that there are no newly discovered problems in the investment properties you have purchased.
- Make certain you can handle regular bills like property insurance premiums and property taxes.
- Line up your tax advisors, if you didn’t already have one.
- Learn if your tenants are good ones.
Also note that this is the time to learn how to evict someone, rather than waiting until you have two non-paying renters. Build up your real estate portfolio. If you are reluctant to make more acquisitions, use the money to pay down your loans. Your profit margins will increase if you eliminate the associated loan payments.
Consider Upgrading or Diversifying Your Real Estate Portfolio
There are various means and ways you can upgrade or diversify your real estate portfolio. You could take advantage of a 1031 property exchange, selling several houses to buy an apartment building. Multi-family housing tends to need a shift in your business plan, but it provides a more stable rental income.
About 90% of real estate moguls own multiple apartment buildings to better withstand occasional vacancies. Also, note that multiple income streams from apartments can offer the cash flows required to pay down the mortgage. Buying a big apartment complex quickly builds up your real estate portfolio.
You should also remember that your profit potential is directly related to the amount of rehab needed and the purchase price. Therefore, you need accurate numbers for NOI (Net Operation Income) and a cap rate that makes sense. Only then you should move ahead with the purchase price.
- Suppose your complex has 1,000 units and the average annual NOI per unit is $10,000.
- Then your annual net operating income would approximately be $1,000,000.
- Any unexpected expenses or unplanned vacancies will decrease this number. The U.S. average vacancy rate is 8 to 10 percent.
- Therefore, it is prudent to assume you will earn just 90 percent of the expected income.
- In this case, that is $900,000 per year from one apartment complex.
Another option for diversifying your real estate portfolio could be expanding into a new area, whether it is another suburb or a different neighborhood. You may need to make a change simply to shift your investments from a declining neighborhood to an up-and-coming one. Another option is selling the properties that have been appreciated the most, paying the capital gains, and using that money to live on.
Building a real estate empire won’t happen overnight, but with the right mindset, you can start putting the pieces in place to become a success story in your own right. To that end, leverage this guide to help you get started on your journey toward becoming a self-made billionaire.