I was reading a book from a popular commercial real estate investor this evening and he made the bold claim that real estate is a "get rich slow" business. One of the most successful investors I know in Austin uses this exact same phrase quite a bit.
Overall is this something you agree with? I think the overall point is that rehab or value-add deals are good for short-term gains, but that the real money is made over the long haul owning property.
Agree? Disagree? Opinions?
Real estate = a business, and like with any business, how quick you get rich depends on how you define rich, how much risk your willing to take and how much volume your willing to work to sustain. But I think the intent of the statement is good since it is probably aimed at people who count too heavily on magical appreciation to make them rich
I was just thinking about this the other day, although perhaps from a different angle. Today it's quite possible to become very rich practically instantly (relative to traditional business and RE) with the internet and globalization.
I would have to agree with the "get rich slow" especially with my businness model of buying 1 or 2 rentals a year. Although, I rather get rich slow than never get rich.
I think that it is easy to confuse getting rich with building wealth. I happen to know from experience that real estate can build real wealth over time.
Appreciation is only one way that real estate builds equity. Good investment properties also build equity through tenant payments. You can also force appreciation in some circumstances.
While I agree that appreciation in today's market is not something to count on. I happen to believe that appreciation will be back at least in many areas. There are some areas of the country that might face long term problems.
There are (at least) two aspects to real estate -- passive investment and active business.
Approaching real estate purely as an investment will certainly not allow you to get rich overnight, but provides a great opportunity for long-term wealth accumulation.
Approaching real estate as a business will allow you to build cash quickly, relatively to your efforts, time, cash and ability. If you're willing to put in a lot of time, effort and cash (and have the ability), you can make a lot of money quickly. But, this is no different than any business dealing in high-cost, high-margin products -- it just so happens that real estate is the highest-cost product that is easily accessible to all people.
So, the answer to your question is, "It depends"... :)
Put me in the "it depends" camp. "Real Estate" is far too broad a term and "rich" is too vague. This is similar to saying the stock market is a get rich slow business...it depends on what you are doing (day trading options vs holding mutual funds). I know several people who accumulated a lot of money in a relatively short time in real estate. I also know people who have been investing for over 30 years and have accumulated wealth slowly. So real estate can be a get rich quick, get rich slow, get poor slow, or get poor quick game, depending on strategy, risk, timing, luck, and numerous other factors.
For me it absolutely is... but that's what I want. I don't care if I'm rich at 35, 40, 45... why? Because I'm not going to retire until my kids completely their undergrads, right about the time I turn 55. What I care about is the lowest risk approach that leaves me rich at 55.
Real estate as an "investment", not a job... is a slow wealth accumulation model... but fairly low risk. I love it.
So what is slow and what is quick? Is doubling your net worth every 5 years slow? I'm sure it seems slow whom you are 25 years old and show $25k net worth on your balance sheet. But what if you are 50 and have grown from $2m to $4m in the past 5 years, and you are targeting $8m by 55, $16m by 60, and $32m by 65? That's a lot of money. But is it fast or slow?
I think developers can get caught up in big opportunities that promise fantastic returns, but carry much more risk. We see or hear about a successful one and say why can't I do that? And maybe you can, but doing so repeatedly is an outlier situation. Look at it this way, if a developer or even an investor who started with $100k, could double their worth every 2 years, within 40 years they would be worth well over $100,000,000,000.00 . This ignore taxes, but you get the idea. So yes, it is possible to get rich quick in RE, but not possible to sustain fantastic returns.
Another observation. Those who got rich quick are far less likely to hold onto their money than those who got rich slowly.
Here's the numbers, I like numbers. My near term goal...
I'm looking to get 19 mortgages between my wife and I in the next 3 years while rates stay low. I figure that's a great start to our retirement though by no means the end. I'm going to guess that'll be about 50 doors. I'm shooting for about $2M in debt on those 19 mortgages. Here's the fun part.
I target a minimum of 1.5% rents which at the low end keeps debt servicing right around 33% where I want it. This means $2M in debt would generate $30k in monthly rents, $5,100 in free cash flow (17%). If we assume straight line equity pay down over 30 years, we're also "buying" $5,555 of house each month with our mortgage payments. If we assume the market returns to appreciation matching inflation at 3%, our portfolio is appreciating in value by about that same amount, $5,555 a month.
So add them up... if I hit my plan of 19 rentals valued at $2M rented at 1.5% of purchase price generating a debt to income ratio of 3:1 with long term 3% inflation/appreciation, our net worth goes up $16,210 a month. How many "normal" people would love to be able to say that?
It really must depend on a person's strategy, circumstances, ability, access to money and time. Based on some other posts about net worth and monthy income goals here on BP where folks are talking about 20MM net worth and 20K monthly passive income, I'd say, hell yeah, that's gonna take a couple decades minimum - unless you already have a high net worth and/or high monthly income. There might be that one guy or gal out of 10 million that accomplish high lofty goals in 5 years or less, but then again, there are people who win the lottery and get rich instantly too...
Sounds like a great plan, Nathan. Growing your net worth at $200k a year is remarkable. However, if it is growing at that rate on a foundation of $3mm net worth, I'd argue that isn't fast. A very worthy goal, but not fast. But reasonable speed is good, IMO.
Get Rich Slow is just a marketing slogan telling the reader/listener "I'm the real deal- learn real estate investing from me" -to distinguish themselves from other gurus.
It could be followed by valuable information or a load of crap, depending on the person.
You can get rich quick or slow in real estate, just like any other business. Most people who do it will fall into most people's definition of slow.
How about "relatively slow at first"?
Originally posted by Zachary Dosch:
How about "relatively slow at first"?
"Compounding interest is the most powerful force in the Universe."
I love Trammell Crow's quote "To get rich in Real Estate you need to buy something and live a long time"
Many times as we know the allure of a quick buck can mean the bucks you have go quickly out the door with all the variables that exist in the world of real estate investing. When you have time and knowledge to do it right, it can happen quick and long-term at the same time depending on what type of investing you are doing. I have done it a few different ways and now as I don't have as much time, it makes more sense to use a turn-key system done by a power team that does this everyday.
Its definitely not fast but i know many super successful real estate owners who just collect checks now for a living.
compounding is dependant upon your reinvestment strategy. The more of your income you can put back into the company the steeper the curve is, but eventually you reach critical mass and decide to stop buying. or you decide to take profilts..
The wealthiest families never sell anything. They get rich slow and stay that way, and get richer still.
That is pretty much what I have found too Ann. Selling is inferior to refinancing and deploying the capital to other projects. If you did "sell" it would be better to exchange (trade) IMO too.
Originally posted by Charter Pacific:
Real Estate - you will be get rich fast with commercial real estate if you know how to manage RE properly. If you have a lot of knowledge about your and proper management, you will surely gain more as fast as you think.
How do you define fast? What kind of return per year?
Real estate is a means of maximizing the income from wealth I have already accumulated. The income derived from my properties allow me to live better on the money I have in retirement plus allows an opportunity for wealth to grow for my 3 daughters twins 8 years old and one 7. The increased return and income is as if I have tripled my net worth, now that's get rich quick from a lifestyle point of view. I guess the modest increments in value and rents would qualify for the get rich slow definition. That's what I love about investing in real estate. You get to have the cake and eat it too.
I guess i agree a little bit with everybody so far. it does feel like a get rich slow business over time when your buying 1 or 2 rentals. However, with that being said, wouldnt it be better to flip and buy and hold at the sametime?
Quick question, how do some of these guys build massive wealth overtime? Selling, Trading, Timing
I think most investors do a little of both, but the majority I know focus on one or the other. I focus on long-term money with rehabs and other projects making me a bit of coin as well. We have also been focusing on building recently to make some money that will later be deployed to long-term projects with lower returns and lower labor components.
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