Most people believe that becoming a real estate millionaire requires having a 6 or 7 figure savings account to get started. The truth is that many investors started with little capital and were able to grow their real estate portfolio organically and create significant wealth. Like most other things, it just requires the right plan.
I’m not saying it’s not possible to buy a million dollar apartment building with only $5,000 cash, but it’s not likely and you’re most likely going to have to start small and strategically grow your investment. You’ll also mostly likely will have to come up with some cash, despite what the dozens of real estate gurus are telling you every day through their Facebook ads. While some of their strategies are somewhat legit, they require an amount of work that could be better utilized raising capital, and also require a certain level of luck. You will most likely have to come up with some cash, but probably not as much as you think.
The best way to get your feet wet is to purchase a single family rental. This will allow you to purchase a property inexpensively, build equity in addition to your cash flow, and give you the experience as a landlord the banks will want to see before giving you a loan on a larger investment. The trick is to be patient, do your homework, and know exactly what you want to buy. Instead of buying something because you’re anxious to get started, be patient and buy the deal that fits your criteria. While it’s tough waiting to get started, buying your first investment property right will allow you to grow your business faster.
Once you’ve found and purchased your first investment property, you’ll start to build equity with somebody else’s money, the tenant. You’ll also want to look for ways to inexpensively add value to the property, which will give you even more equity.
Depending on your particular situation, you may want to use the equity you’ve built in your property to purchase another similar property, or sell it to purchase a larger investment. By utilizing a 1031 exchange you can defer your capital gains tax from selling your property by using the proceeds (consult a tax professional to do this properly) to purchase another property. Between the equity you’ve gained from your first property and any money you’ve saved from the cash flow from your first property, you will have a larger down payment to be able to buy an investment property that’s producing more cashflow and building equity in a more valuable property.
If you stay disciplined in your investments, take some calculated risks, and aggressively move toward larger purchases, you can turn that first single family rental into a multi million dollar real estate portfolio. You don’t have to wait for a windfall, or find a generous investor to get started. You just have to make the decision to start and work toward making that first purchase.