(VIDEO) Is Making 1 Million in Real Estate Investing Enough to Be Rich? Maybe Not…

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Let’s be real.

Most people get into real estate on the pipe dream of making the all elusive (say it slowly with me) 1 Mill-i-on dollars.

But is making a cool million enough anymore to be considered wealthy?

UBS asked 4500 affluent investors that had approximately 1M worth of assets to invest that very question. (By the way their worth didn’t include their homes value).

Check out the video below for their responses:

Nearly 70% said no, having a million to invest didn’t feel like enough for them to be considered wealthy. So what would?

Having 5 million to invest.

What most real estate investors claim would make them wealthy is “never having to work again.” This response may be a bit dated, now. Not having to work is just considered rich.

But what does being wealthy really mean? It all depends on who you ask, and what your goals are, really. Some even boil it down to having more income than you have obligations. For those surveyed, they felt like having 5 Million to invest would be enough such that they would no longer have a constraint on activities. (You know, when the feeling strikes to go on a yachting adventure, etc).

Beyond that, they’re keeping more cash to feel secure, at least 20%. But, they also felt pretty good about their situation over the long term

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Asking the Jones’

So who decides who’s rich, who’s wealthy, and what’s enough?

Perhaps most importantly, is Uncle Sam. The government considers you top of the one percent if you make more than 325K a year.

A different poll by those making $100,000 stated that felt like those who were making 1M a year were the upper one percent, though.

This goes back to those that have over a million…who consider those that have over 5M to be wealthy.

What’s YOUR wealthy?

In relative terms, what does financial freedom really mean to you?

You don’t have to share your exact numbers here, but what about sharing what it would take to get to that point?

Do you think it’s still possible to make a million in real estate in 5-10 years? (You should read Brandon Turner’s article on this).

I’d love to hear some of your goals and what it would take to get there. Please show some love and share this on G+, Facebook, and Twitter, too!

To your success!

Sources: CNN Money, MSN Money
Photo: John C Bullas BSc MSc PhD

About Author

Tracy Royce

Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert. She also is an avid blogger, vlogger and consultant on all things Arizona Foreclosures.

48 Comments

  1. Uncle Sam says 325K is the top 1 percent, but that’s after deductions….which prob pushes those people closer to 400K.

    Anyway that term means something different to everyone. To me it’s having enough money to not have to do anything I don’t want to, and the flexibility to enjoy the things that make me happy. Vague enough? lol

      • I do have numbers in my head, and each day I rationalize whats enough….but once I got to enough, I know I would want a little more.

        Some people are competitive, and maybe money is a way to keep score and has nothing to do with “need.”

      • Actually my specific goals are to earn one million passive and one million in additional income each year from my job in ten years. Of course with hat much income I could afford to hire out basically every aspect of my job. Most of it would be passive in that sense.

        • Thanks Mark, couple million coming in whether you go to work or not. Sounds like an ideal gig. 🙂 Make sure you’re working your numbers backwards to get there and stay on track!

        • Tracy, I wrote an article on how I am going to get there on my blog. It’s mostly about my goal to purchase 100 rentals, which breaks down how I buy them, when and how they will produce the passive income. I have separate goals and plans for the work side, but mention it in the post as well. Nothing like publishing goals to make sure they are written and well thought out.

  2. The whole concept of “rich in America” is kind of an interesting one. It seems that the only group that will publicly admit they are rich are rappers (and most of them probably aren’t even rich especially if it’s their first album)

    This is another article stating that 40% of US investors worth OVER $5million do not consider themselves wealthy!
    http://www.ibtimes.com/forty-percent-us-investors-worth-least-5-million-said-they-do-not-consider-themselves-wealthy-survey

    $1million liquid net worth might not be what it once was, but I think it’s definitely nothing to sneeze at.

    Plus once you make the first million, then your investments can snowball rather quickly.

    In real estate it seems that $1million in cash should give you a relatively safe return of 10%+ if you know what you are doing.

    Even if you are just doing low risk(low LTV) hard money loans you should be able to make over 10% on your money so that would be $100,000k per year. That is a lot more than many people make working full time at a job.

    Being active in rentals or flips should yield much higher returns.

    This article from March 2013
    http://www.cnbc.com/id/100552951
    states that “According to data from Spectrem Group, the Chicago-based wealth research firm, there are now 8.99 million U.S. households whose net worth totals $1 million or more (not including primary residence). ”

    I think a lot of people would be surprised at those numbers. There are literally millions of millionaires in this country.

    With these figures , I do think that making $1million+ in 5-10 years via real estate is attainable.

    “There are now 1,078,000 households worth $5 million or more and about 107,000 people worth $25 million or more.”
    So there are also MILLIONS of households worth over $5million…I wonder how many did it through real estate!
    http://blogs.wsj.com/wealth/2012/03/21/millionaire-population-grows-by-200000/

    These numbers make me pretty confident that real estate is a much better way to get to $1million + versus the Lotto!

    • Tracy Royce

      “There are now 1,078,000 households worth $5 million or more and about 107,000 people worth $25 million or more.” This is pretty astounding. Thanks for supplying all the extra information, definitely a very engaging topic to explore.

    • Tracy Royce

      It may be the same quote I’ve heard…”The definition of enough is more.” Always gets me to chuckle, especially when you compare how much we think we “need” here compared to consumption rates in other countries. Gluttony in many cases, if you ask me.

  3. Being weathly is a function of what you make but more importantly what you spend. Once you have enough to meet you needs so that you don’t have to work I would consider that wealthy.

  4. Shawn Sorter on

    Clearly for everyone this answer will be different.

    I think the danger comes for those who will never feel they have enough no matter how much they do in fact have.

    For me being wealthy will be having my loved ones in good health and providing all of their needs and a few of their wants. Coming to a point where you have enough that you don’t have to ever worry again about money would be true financial wealth, whatever that amount would be.

  5. People think $1 million is huge. But if you today had $1 million in index funds, are you ready to live on just 4% of that each year? That would be $40,000 before taxes. Assume perhaps 25% taxes, and you only have $30,000. Ready for that? Not me.

    To compound this, factor in an assumed inflation of 4%. In about 20 years, $1 million would only be worth perhaps half that. So don’t be shooting to retire on $1 million 20 years from now. If inflation is smooth and never rises, then it would only be about $500,000 in today’s dollars, yielding perhaps $20,000/year before taxes. Yikes!

    Things look even more bleak when you look at what people currently have in net worth. The Federal Reserve bulletin says that people aged 55-64 have a median net worth of $117,000.[1] That includes personal home equity. I would assume that the majority of people here on BP probably are doing better than that. I hope they aren’t planning to stop at $1 million.

    Another very illuminating prospect is an article I read from BP contributor Dave Shafer that totally destroys the save-a-cup-of-coffee-a-day-and-be-a-millionaire.[2] If you look back in time 20-30 years and check out people’s median incomes then and compare it to now, it becomes absurdly obvious that hoping for 5x your current annual income by the time you reach retirement stands little chance of working.

    Happy investing!

    [1] – http://www.turnquistwealthbuilders.com/2012/10/the-truth-about-net-worth.html
    [2] – http://shaferfinancial.wordpress.com/2008/01/18/do-you-continue-to-do-what-we-know-doesnt-work/

    • Tracy Royce

      Greg this is really enlightening; thanks for breaking it down.

      Although saving money from high-markup luxuries like coffee drinks can certainly help you develop better spending habits and some rainy day money, reinvesting it is not the path to financial freedom.

      I really feel for the college grads during this recession; there is a lot of evidence stacked against their financial future, near and far. You’re right…1M is just not what is used to be, and isn’t much depending on how far away from retirement one is.

    • Sorry, I thought there was more about the skip a coffee-a-day in that link I provided.

      If you visit http://www.shaferfinancial.com/book.php, grab a free copy, and skip down to page 11, Dave points out how setting aside $10/day, i.e. a couple luxury items, for 35 years may indeed turn you into a millionaire, but it is short sighted. $10/day would be like $300/month. Go back to 1971 when median income was just short of $9000/year, and you would be asking someone to effectively save almost half of their after tax income.

      Translated to today’s dollars, it may imply you have to be saving half of your after tax income to match what the cost of living could be like 35 years from now. If you think cutting tiny costs is the ticket to comfortable retirement (not super rich, just comfortable), you’re in for a nasty surprise. So why do people keep pushing these “skip a coffee-a-day”?

  6. It’s the reason I’m investigating plans to set aside bits of stock to give my kids when they are old enough to handle it.

    I’ve already figured out that 529 plans are pretty bad for college savings. Instead, it’s more effective to invest everything into growing my real estate portfolio. Then when it comes time, I can either cash flow pay for my kids college, sell a property and pay, or perhaps refinance. Worried about losing tax deductions? That’s just the worm on the hook. You don’t have to hand your kids a check and run aground gift taxes. Instead, you can pay the university directly and it’s not a a taxable event. I’d rather have enough money to fund my kid’s education than have nothing and have claimed a worthless tax deduction.

    It’s possible to open brokerage accounts on behalf of your kids and buy stock for them. But all states will let them take control on the age of majority, usually either 18 or 21 based on which state. I would prefer to open a trust in their name and let the trust open a brokerage account. Then I can charge it with some money now, buy blue chip stocks, let them DRIP over the next 30-35 years to grow into something of value, and then let my kids have control at the age of 35 when they are more likely to have learned some of life’s valuable lessons. They might have to pay capital gains taxes since it would have been in their own name, but I’m assuming they would not object if they have a chunk of change.

    • Greg might it be argued that your children are responsible for their own college education? Many financial advisers advocate a sustainable retirement that meets your needs rather than opting to fund your kids’ tuition.

      Another route (if they’re all going to a 4 year college) is 2 years of junior/community college, then you’ll foot the rest? You stated you rather have nothing and fund their education….just playing devils advocate here.

      Thanks for spelling things out more too…I’m sure there’s many other BP’s looking at different options for funding their childrens secondary schooling.

      • Absolutely the best gift for your kids is to have your own retirement fully funded so they aren’t responsible for you. What I was trying to say is that 529 plans and other tax deductible IRAs have complex, entangling rules and yet have a terrible track record on producing growth. It’s just not worth my while to take on such entanglements. To top it off, what if they don’t go to college but instead a trade school?

        If I build my real estate/stock portfolio instead, then I remain in control and can decide whether I’m going to let them work their way through college, make a 2-for-2 deal with them as you suggested, pay partially for it, or perhaps totally pay for it. I understand the value of letting them attain a good work ethic. But I also understand that college is costing more and more relative to the cost of wages and perhaps may wish to help them reduce their debt level when they graduate.

        Picking mutual funds just because they have a special tax shelter is a terrible way to build wealth, whether it’s for yourself or your kids.

        • I’m in complete agreement with you Greg (although I’m not a parent, so of course I can’t relate). It sounds like you’re already doing a wonderful service to your family and are a mindful, but compassionate mentor and Dad.

          To your success and wealth!

  7. I want to be wealthy like everyone else, but I know it’s all worth nothing of I don’t have peace and family to enjoy it. So my definition of wealthy is a life where all my needs are met, I have peace in my soul that I am right with those around me and God, and that I love and am loved. Then if I lose all my money, I still am rich in life 🙂

  8. Reuben Rosofsky on

    wow Mike, you hit it right on the nose. Everybody brought up some great points and questions but the real question here is what is wealth mean to you for me it has three main ingredients number one, is family, without family what would I be doing it all for anyway. number two. is health, having relatively good health be able enjoy your family and the other wonderful things in life. And number three. To have enough income to cover my monthly expenses with a little extra cushion for the unexpected things that happen in life.for me the first two ingredients is most important and without either one of those. The recipes is a failure.I’m sure many of us can come up with other ingredients to add to this recipe, and we can all agree the first three ingredients would make life sweet enough. It is for me. Thanks Tracy for starting this thread you also made a great point. Keeping expenses low makes it easier to achieve wealth.

    • No problem Reuben…there’s not a lot of mention in this thread about health or happiness…ya’ll a hard-nosed bunch! All kidding aside, there are enormously wealthy people who have severe disabilities…so you have to wonder if they would trade some of their money for a healthier body. But for the sake of remaining “on topic” having at least 1M of invest-able income would certainly help with those rainy days you mention.

      • Thanks Reuben! That’s was great too!
        Tracy, great point about the disabled rich guy. I heard a wealthy man once say, ” I spent the first half of my life getting wealthy at the expense of my health, and the second half of my life trying regain my health at the expense of my wealth. “

  9. One million certainly isn’t wealthy but it depends on what your needs and wants are. If you are in your 20’s you need to pay for 60-80 years of living. That will take lots and lots of money. Of course if you have a million in your 20’s you are doing well. If you are 60 it is easier to see what it will cost for the next 20-40 years.

    Having a million, if you are smart and have other sources of income, should give you security and comfort.

    For me, having independence and having the ability to grow in all areas of life is what a rich life is all about.

    • Nice, Jeff. You really hit on some key points.

      What about athletes that go pro out of college and make a few million? You would love this ESPN documentary called “Broke.” There’s also a show about people who won the lottery but I forget it’s name.

      In any case, it’s all relative to your education (around wealth accumulation & spending), and construct of what wealth really means.

  10. I think $1 million is liquid (easily accessible funds) would make a great start, but it would also need to be put into some sort of compounding account, where you will be making money on your money even if it is not touched, either REI funds, or PML or some other sorts. So to clarify i dont think having just $1 million sitting in some account and that it the only thing you use for funds is enough….. But the other side is also what kind of life style would one be living and what amount of funds would be needed annually to pay for that lifestyle. If someone is only living on 30-35K annually, then yes $1 million may last a while, but if someone lives on $100K-200K-300K annually then no, it would be used up quickly and back to square one. So it is all relative of the needs and lifestyle of the holder.

    For me personally, i could survive with a liquid million for many years as my expenses are low and i live a very modest lifestyle, but once i start generating more income i will increase my spending for luxury, but not for minimum lifestyle….. If that makes sense. In other words i could cut my extra spending and still be able to afford my lifestyle with ease.

    • Sounds like you have a good head on your shoulders, Justin. 1M is certainly not what is used to be, but can certainly be leveraged in a smart way to live off of, or at least partially.

      Keeping your overhead low, as you are doing, is a fantastic start. The harder part it keeping it that way I suppose 🙂

  11. I think a million would be plenty for me to live off of considering I compounded that principal amount and just lived off the interest through an REI vehicle such as PML for example. I could easily live on $50,000 annually as my expenses are very low and in fact, I comfortably live on less than that now!

  12. Hi Michelle, you and Justin (above) are on the same page. I think that’s why “hard-earned” (slowly accumulated, first generation) wealthy tend to be more of the spend thrift mindset.

    Easy come, easy go for those who don’t respect how money works and/or don’t take the time to educate themselves to it.

    Thanks for the kudos, glad it was entertaining!

  13. Well if I didn’t already know you were from AZ I would have been able to guess by your complete inability to make it rain.
    Pretty sure some of those admittedly rich rappers would shed a tear seeing that attempt. 🙂

    But I digress…

    I definitely look at rich and wealthy as different things. Rich to me is having a high income (regardless of source) and can go away so you need to take your riches to build wealth.
    Wealth is owning assets that produce income or appreciate in value, and hopefully both.

    For me I would probably start to feel wealthy once my net worth (not including personal home equity) was a bit over $1M, as that would be the point where there should be enough assets to produce the passive income that would allow me to easily live off of without doing anything else.
    However as discussed that would not really be “enough” as I would need to be cost conscious and would not be able to take that spontaneous vacation (Or make it rain) whenever I wanted. I think I could hit that level before $5M but probably not much before $3M.

  14. My rain-making skills are quite sad, I concur. I was hoping no one would highlight that, thanks Shaun 😉

    I must say I agree with your conclusions and figures of wealth and “rich-ness” as well.

    Thanks for time for viewing the video and commenting, and hope you’re well on your way to your income/asset figures! To your success –

  15. For me financial freedom equals a net worth of $2M and net passive cash flow of $10k a month. That just happens to be my 4 – 6 yr goal. I’m sure I’ll have a new goal when I acheive this one.

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