Becoming a real estate mogul is every investor's dream. If you’ve been in the business of real estate investing, you must have had that burning desire inside your heart to know, “how to become a real estate mogul.” What is a real estate mogul and how to become one? A real estate mogul is 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 & residential properties.
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. How do real estate moguls make so much money? You must have read a zillion times that “real estate is a classic wealth-building technique.” We associate property with wealth so much that the term “real estate” means real property and an estate originally referred to the land/property held by someone.
Physical possessions like furniture and money were secondary to productive farmland and rental property someone owned. More importantly, real estate remains a wealth-building tool for the majority of moguls. 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 another. An average real estate investor can also become a mogul by acquiring the required skills and learning how to craft a successful investment strategy.
Those who invest in real estate believe the only option they have is to either sell a house or rent one out. The real estate market has diversified in recent years, opening up a whole slew of intriguing opportunities to invest. You can flip houses, invest in exotic real estate options, and even diversify into purchasing turnkey rental properties or invest in other passive investments.
Having a crystal clear concept can turn a strategy into reality, especially for first-time buyers who want to start investing in rental property. It may take you a decade or so but the efforts are worthwhile, and it’s every real estate investor's dream. These steps will guide you in setting up a visionary plan to become a real estate mogul, which is an elusive thought for many budding investors.
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8 Tips On How To Become A Real Estate Mogul or Millionaire
Strategy is essential in the world of real estate investment. Every item needs to have a purpose, regardless of its location, budget, or type of property. Here’s how to become a real estate magnate through step-by-step planning and execution.
1. Have a Good Business Plan
A good business plan is the first step to becoming a real estate mogul. Writing a solid business plan begins by defining your mission and vision statement. It is difficult 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 buying fixer-uppers and ripping out the walls. You need a solid, 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 determine how you’ll find and 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? Know your exit plan before you buy anything. 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.
2. Find Sustainable Real Estate Markets
A good business plan for becoming a real estate mogul will fail if you’re dealing in declining real estate markets. For example, take Detroit. You might be able to find cheap houses there. You may even be able to rehabilitate them to the point they’re 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.
A real estate market that’s 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 certain 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.
Do your research regarding real estate markets. Then choose one in which you can repeatedly implement your business plan. This allows you to build up your network faster since you’re relying on the same lenders, real estate agents, property managers, contractors, and other real estate professionals.
3. Narrow Down Your Scope
They say that location is the most important thing in real estate. If you want to become a real estate mogul, it isn’t enough to find a great real estate market, whether you’re looking at a general metropolitan area or a specific suburb. You’ll want to find the best neighborhoods for investing, whether you’re buying and holding rental real estate, buying and developing land, or fixing and flipping.
A good way to determine which neighborhoods are a good fit is by calculating the housing affordability index. If most residents can’t afford to buy a new home, you can be certain that there is a large population. Nor would that change dramatically if someone built a new apartment building or suburban subdivision.
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?
- For example, entire neighborhoods may be a developer’s nightmare because of rules intended to maintain a historic aesthetic.
This is one reason why you want to focus on a particular area in your journey of becoming a real estate mogul. The investment in the time and effort you spend doing this research will be recouped once you’ve bought several properties. And you should invest the effort upfront because you will be dealing with these rules over the long term. Remember that real estate investing should be slow, if you want to mitigate risk and maximize your returns.
4. Build Your Real Estate Team
Another reason you want to focus on a specific area is that you can work with the same professionals again and again. This eliminates the need to vet building contractors and investors before any deal, and it results in smoother transactions as you get to know each other. Every potential real estate mogul 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 who you would likely use to secure a property and manage it before you tour the property. You should start with list of recommended service providers before you buy your first investment property. Expect to narrow down the list as you gain experience. For example, you may strike a contractor off your list when they stop in the middle of your renovation to work on a higher-paying project. You might drop a realtor who doesn’t put the effort into moving a property.
5. Acquire Your First Investment Real Estate
Every journey begins with a first step. So does wealth building through real estate investment. You need to begin 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 the 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.
Complete the process according to your business plan, which you have charted out for becoming a real estate mogul. This is essential to your success because the goal is to have a known, repeatable process from start to finish. For example, 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. A side benefit of starting slowly is that you minimize the risk and the potential losses if you make a mistake.
6. Step Back and Evaluate Your Investments
Suppose you’ve bought, renovated, and flipped the first investment property. Did you clear a profit? It is great 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 over-build?
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.
- Is the rental rate too low?
- Are you not vetting your tenants for their willingness or ability to pay rent?
Once you’ve 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.
7. Step Back and Wait
Becoming a real estate mogul is a long journey that spanned 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’ve purchased.
This gives you the information you need, whether you need to add additional items to your standard inspection or must find another building inspector.
- Make certain you can handle the 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.
This is the time to learn how to evict someone, rather than waiting until you have two non-paying renters. Once you’ve made certain you have the administrative affairs in order, repeat your refined business process of becoming a real estate mogul. Build up your real estate portfolio. If you’re 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.
8. Consider Upgrading or Diversifying Your Real Estate Portfolio
There are several 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 requires a shift in your business plan, but it offers a more stable rental income. About 90% of the real estate moguls own multiple apartment buildings to better withstand occasional vacancies.
The multiple income streams from apartments can provide the cash flows necessary to pay down the mortgage. Buying a big apartment complex quickly builds up your real estate portfolio. However, it takes time to sell your apartment complex. You can’t simply turn your investment into cash overnight without risking a potential loss.
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’s prudent to assume you’ll earn just 90% of the expected income.
- In this case, that’s $900,000 per year from one apartment complex.
Another option of diversifying your real estate portfolio is to use the 1031 property exchange rules to sell one or two under-performing single-family homes and try your hand at luxury real estate.
A third option 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 appreciated the most, paying the capital gains, and using that money to live on.
Summary
We’ve just outlined a proven method for building wealth through real estate. You won’t get rich or become a real estate mogul overnight. It can take years to create a multi-million dollar real estate portfolio that generates enough income to provide the lifestyle you want. On the other hand, we’ve outlined a process that can be repeated as often as required and minimizes both the work required on your part and the risk to your finances. Investing in rental properties & building a growing portfolio is a great way to build wealth, but it’s still relatively slow.
To achieve bigger goals of becoming a “real estate mogul,” “building massive wealth,” and “achieving true financial freedom” in less than a decade, you must build a strong foolproof business. That business would help you to build legacy wealth for you and your family, and many moguls have achieved that through real estate. So, tap into your current wealth of knowledge and get started this year.
References:
- Intro stats
https://thecollegeinvestor.com/11300/90-percent-worlds-millionaires-do-this/ - Have a good business plan
https://medium.com/better-marketing/10-skills-to-becoming-a-millionaire-in-5-years-or-less-e16b8b20500c
https://www.cnbc.com/2018/05/30/self-made-millionaire-how-to-get-into-real-estate-on-a-40000-salary.html - Build your team
https://www.forbes.com/sites/forbesrealestatecouncil/2019/10/02/avoid-these-eight-common-real-estate-investing-mistakes/#316b43d352a2 - Repeat the process
https://www.biggerpockets.com/blog/wealth-through-rentals
https://www.fool.com/millionacres/real-estate-basics/investing-basics/how-become-millionaire-real-estate/ - Step back and wait
https://www.mashvisor.com/blog/how-to-get-rich-in-real-estate-strategies/ - Consider Upgrading or Diversifying Your Real Estate Portfolio
https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx
https://www.forbes.com/sites/brandonturner/2016/10/18/4-things-you-need-to-become-a-millionaire-through-real-estate-investing/#134c33f5247a
