How to Make Money & Become a Millionaire in Real Estate

Tips and strategies to maximize profits.

I want to share with you a really simple explanation of how to make money in real estate—where a person can go from almost nothing to making money and becoming a millionaire.

Let’s first get some clarification on how this works. We’re talking about buying rental properties, which means you buy investment properties—such as a duplex or an apartment building—and you rent them out as long-term rentals or short-term rentals (like vacation rentals). 

Commercial properties are great types of real estate investments, too but usually require more money upfront to get started. 

But before I walk you through the math behind becoming a millionaire through real estate and the strategies for making money in real estate, I want to get us all on the same page as to the fundamentals of owning rentals.

The Five Wealth Generators From Rental Properties

First, let’s learn how to make money in real estate with the five wealth generators. These are the five things that make owning rentals and investing money in real estate projects so awesome.

I talk about these ways more in-depth in my book, The Book on Rental Property Investing, but let me give you the quick and dirty on the five wealth generators.

1. Cash flow: Income from rental properties

This is the extra money every month that a property produces in profit (income minus expenses). 

The key to this, though, is making sure you have an accurate understanding of what those expenses are, like your mortgage payments. They can be tricky. But basically, the money you’re left with in your pocket, that’s cash flow.

Related: How to Accurately Estimate Expenses on a Rental Property in 3 Easy Steps

2. Appreciating property value

This is basically the simple truth that real estate tends to climb in value over time. This means your equity in your real estate investment automatically increases without you having to do anything.

However, there are ways you can speed up the appreciation process even more by making updates that increase your property’s value. Some of these updates could be remodeling the kitchen or even smaller things like increasing the curb appeal with some landscaping. As long as you can hold on to most properties long enough, you should see appreciation. 

3. Loan paydown

Now, normally, when you buy a piece of real estate, you get a loan from a bank and make a mortgage payment each month. But the cool thing is, over a specified period of time, this loan gets paid down, which means you might start off owing $200,000 on the property, but eventually you’ll owe nothing, meaning you own the property in full and don’t have to make payments anymore.

4. Tax benefits

Now, for our purposes, we’re not going to talk a lot about it. But in real life, man, the tax savings are huge for a real estate investor! 

If you make $100,000 from real estate and your friend made $100,000 from a job or a business they own, you’d likely end up keeping WAY more money than your friend.

5. Inflation and property values

As I’ve already mentioned, real estate property appreciates, which makes it a good investment against inflation. Sure, things like 2008 happen and the real estate market sees a decline—sometimes by a lot. 

But over time, prices do tend to climb and increase your property value. Plus, as a landlord, you can use inflation to work in your favor and make money by increasing rents. This will increase your profit margins so you can use that extra cash to buy a property and make even more money.

How to Make Money in Real Estate With the Five Wealth Generators 

Let me show you how these five wealth generators can make money in real estate and help you become a millionaire. 

Let’s just say you bought a residential property as a rental. Maybe you put down 20%, or maybe you found a more creative way to finance it and were able to do it with no money down. 

(This, by the way, is entirely possible. We’ve got a ton of content at BiggerPockets all about that. Heck, I even wrote a book on it!)

But anyway, let’s say you bought a single-family home for $100,000 and put 20% down, so your loan is for $80,000. And let’s say you were able to make $200 per month in cash flow from that house. 

Doing the math: $200 x 12 = $2,400 per year. So after one year, you’ve made $2,400. But there’s more to that, isn’t there?

During that time, your loan balance dropped from owing $80,000 to like $78,500. But assuming a 3% average appreciation, the value of the property has climbed to $103,000. So in reality, you made $2,400 in cash flow, but you also made $1,500 in the loan paydown and $3,000 in appreciation. 

We’ll ignore the tax benefits for now, but they make this even better. So you’ve actually added about $6,900 to your net worth during the first year. You’re not a millionaire yet, but over time, the cool thing is, this speeds up.

Related: 10 Tips For Maintaining Your Rental Properties

You start paying off more and more of the loan, and the value goes up and up. In fact, assuming a 3% appreciation, after 10 years, the property might be worth around $135,000, and you should only owe around $60,000.

The difference between what you owe and what it’s worth is called equity, and with these numbers, it’s around $75,000. If you were to add in the cash flow you were making every month, you’ve actually added about $100,000 to your net worth.

I know a lot of you are thinking, “Ten years and only $100,000? That’ll take me 100 years to reach $1 million!”

But here’s the cool thing: This is just one deal. Once you’ve figured out how to do one, you can do another. And another. And another. They all add up for your real estate income.

And you don’t have to stay small with $100,000 residential properties. Most savvy real estate investors have a diversified portfolio. 

In fact, what if you were to buy a $500,000 small apartment complex? Or look into commercial properties? The same principles apply. Every year, you’re paying off a little more, and every year, residential and commercial properties are increasing in value. Your cash flow is increasing, your net worth is increasing, and you’re getting wealthier.

And that’s how you build wealth and become a millionaire through rental properties. You buy cash-flowing rentals that increase in value over time while also paying the loan down.

Other Ways to Make Money With Real Estate 

While rental properties are an incredible way to build wealth, there are other options for investors looking to make money through real estate. Here are a few different ways you can break into the field.

Real estate and mortgage investment groups

A real estate investment group (REIG), mortgage investment corporation (MIC), or mortgage-backed security (MBS) are other ways of making money in real estate. 

MICs and MBSs invest in private mortgages and distribute payments to investors. Real estate investment groups have their own unique structuring and offer equity investments or partnership servicing for investors.

Real estate investment trust 

Real estate investment trusts (REITs) are another way to invest in real estate, but instead of purchasing properties, investors contribute capital toward the trust and a company uses the funds to purchase real estate. The company then pays out dividends to investors as passive income, similar to mutual funds. 

This can be a great way for real estate investors to make money with real estate without worrying about managing a property or coming up with a down payment for other real estate investments. 

Raw land income 

If you own a piece of land, you may be able to generate income from the land without having to manage any dwellings or tenants. Companies will pay landowners for the raw land if they need to use it for work, such as agricultural production or installing a cell tower.

FAQs About Investing in Real Estate

Here are a couple of questions you might have about how to create wealth investing in real estate.

1. How do I come up with all these down payments for rental properties?

In the beginning, maybe you’ll save up for the down payment and work with a real estate agent to find the right investment property. 

But honestly, I started investing using more creative strategies—things like house hacking, the BRRRR method, using partners, or raising private money. Many beginning investors fix and flip properties and use that money to invest in more properties.

There are a lot of ways for real estate investors to put together a deal. The bottom line is, if you have a good deal, you’ll figure out a way to finance it.

2. How do you know if you have a good deal?

You’ve got to learn how to analyze ’em! Besides the listing price, you’ll want to make sure the property is at a desirable location and understand how much risk the property poses. 

Ultimately, your investment property needs to produce income. We have calculators at BiggerPockets.com that you can use, and I also teach a free webinar every week on BiggerPockets, where I walk people through real estate income numbers (use the link to sign up for the next one).

3. How do you manage all these real estate investments?

Well, the short answer is, you don’t. I mean, you could, but for most of my properties, I hire a property manager to look after them, which makes these investments passive income. Of course, you still have to manage your manager, but they are the ones getting the phone calls from tenants.

4. What if the market drops?

This is why I buy cash-flowing rental properties. If the real estate market drops and we’re in a financial crisis, OK—I’ll just keep holding on to them and collecting rent to make money. And I’ll buy more residential properties because now everything is on sale. 

It’s a simple concept to invest in the stock market. You can’t sell because the market is hitting a low point, and you’re afraid to lose money, but that’s the time to invest even more to see the amazing payoffs.

What goes down must come up at some point. Millionaires are made during a financial crisis. When the real estate market recovers and property is in high demand, you’ll have more income-producing rental properties that have appreciated, exponentially growing your real estate portfolio.

5. Can I make money in real estate with no money? 

A lot of people are scared to invest in real estate because they don’t think they have enough money to get started. If you ask real estate agents, though, they’ll tell you that there are ways to invest in real estate with little to no money, like getting a home equity loan on your primary residence or finding other investors to partner with. Short sales can also be a good option to find residential real estate at a steep discount.

The Bottom Line

You know now how to make money in real estate and that you can become a millionaire through real estate investing. I did it in under a decade! 

Sure, making money in real estate won’t happen overnight. But it will happen if you’re patient, stick to sound principles, and continually educate yourself on improving. Just start with one property. The sooner you start investing, the faster you’ll become a millionaire through owning real estate.