Sorry, But Investing in Rentals Won’t Build Massive Wealth. THIS Will.

by | BiggerPockets.com

You may remember an article I wrote a while back regarding what being a CPA has taught me about becoming a millionaire. I wrote that article because I am able to peer into the lives of financially successful men and women. In doing so, I’d noticed trends in habits that these people possess and I wanted to share that with the world.

Since writing that article, I have continued identifying similarities among my most financially successful clients. I do this by harnessing my natural curiosity and turning tax calls into wealth building Q&As. Yes, sometimes I get too excited and forget that the client is calling ME for advice and not the other way around.

Regardless, I want to share with you today a revelation I have identified that honestly is not surprising, shocking, or head-turning. But it does go against the grain of what is constantly preached on BiggerPockets.

Ready for it?

Investing in rental properties will not be what generates your massive wealth.

There it is. I said it. If you want to generate massive wealth—I’m talking Grant Cardone type of wealth (okay maybe not that much)—rental properties will not be your primary driver of such wealth growth. Let me explain why.

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Investing in Rental Properties to Build Wealth is Too Slow

I can’t tell you how many people come to me saying that they want to cash flow $10,000 per month. That’s an awesome goal and there’s nothing wrong with it, except for the fact that you’ll need to invest roughly $800,000 (that’s equity, not market value) of cash to achieve that level of cash flow.

Yes, $800,000!

How long will it take you to save up $800,000? Years, maybe even a lifetime.

And that’s the problem with rentals. They simply don’t cash flow enough in order to generate massive wealth.

You may say that you can buy property at discounted rates, rehab, rent, refinance, and repeat. But we’re still looking at a long, very long, path to massive wealth generation.

The problem as I see it is scalability. You simply can’t scale a rental portfolio the way you can a business. It requires too much capital, too much planning and overhead, and too much time to effectively scale.

Sure, Rich Dad says that investing in rentals puts you in the correct Cash Flow Quadrant, but they don’t tell you that it’s going to take years, maybe even decades, of portfolio building to create a solid stream of income that guarantees financial independence. They don’t tell you that you must painfully save to buy one rental property per year, which adds only $6,000 to your annual bottom line.

No one talks about how darn slow investing in rental properties will build your wealth. People only talk about how awesome rental properties are, mainly because they have something to sell you. And that something requires you to buy rental properties.

Turnkey companies are one of the worst abusers of selling you the dream of owning rental property. There are great ones out there, but they aren’t building a rental portfolio for themselves. They are building a business that sells the idea of owning rentals for long-term wealth to you! If the companies claiming that rentals will build massive wealth for you aren’t buying rentals for themselves, what does that say about the product they are selling?

I feel sorry for the folks who have multi-million dollar net worth goals and think rentals will get them there quickly. It’s just not going to happen.

But I Never Said It’s Bad to Invest in Rentals

Now, I never said to avoid investing in rentals. And yes, the prior paragraph was intended to stir emotions so that I have your attention for the rest of the article. What I really want to do is encourage you to change your mindset.

I originally thought that scaling a rental portfolio was my ticket out of the corporate world. So I bought a 3-unit property and was super excited about adding another income stream to my life. After that purchase, I was making an additional $700 per month. The only problem was that I had tapped out my savings. So I needed to save another $30,000 to buy another 3-unit to increase my income by another $700 per month. Assuming I could do this once per year, I calculated that I could leave my corporate job in roughly ten years.

Related:A Look at the Rewards, Risks & Rules for Investing in Rural Rental Properties

Ten years! That is way too long. True, it was a faster wealth building formula than keeping my day job as my sole income stream, but it was just way too slow for me in terms of wealth building.

I have since switched my mindset to growing my income and wealth in other ways. While I now own six units and want to continue to scale my portfolio, I decided that rental properties should act as a supplement to my primary wealth-building strategy.

Too many people think investing in rental properties will save their finances. They think that they can grow a portfolio and drastically increase their wealth in only a few short years. While it’s true that rentals are a fantastic source of additional income, don’t expect financial miracles. To feel completely and utterly financially free will require a ton of work, a hard lesson about spending habits, and plenty of time.

If you want to diversify your income streams, make yourself less susceptible to economic downturns, and reap tax benefits, then investing in rentals are still one of the best assets you can invest in.

But you need to understand what “investing” means. Investing is meant to be slow and deliberate—a steady increase to your overall net worth. Investing is not faced paced, nor is it speculative.

Unfortunately, slow and steady rarely allows you to build massive wealth. That’s my overall point here. Investing in rentals is a great play, but it’s slow and deliberate. Anyone can attest to that.

What to Do Instead

If investing in rentals aren’t the answer to generating massive wealth, what is?

After speaking with my wealthiest clients, all of whom own vast rental portfolios, it became obvious that none of them made the bulk of their wealth with rental properties. Literally zero of my wealthiest clients utilized rental real estate as a means to build their massive wealth. Instead, they invest in rental real estate to diversify their income streams and continue building the wealth they already have at high rates. Investing in rentals came after, or were secondary to, building out a large net worth through other means.

Instead, here’s how they built their foundational wealth:

  1. They started, ran, and sold a business or multiple businesses.
  2. They were in a sales job that allowed them to quickly grow their income.
  3. They worked their way into a high-compensation job that always involved stock options.

True, there have been “investors” who used rental properties to build massive wealth. Some are even consistent contributors on BP. But I’m arguing that they are building and scaling a business. They are raising capital, putting no money down, running multiple projects at once, hiring a team, and operating a full-scale business. That is definitely not investing. Rentals are their product and they are building a business around that product. That’s quite different than buying one or two rental properties per year.

Building a business will build wealth quickly. When you make a sale, not only do you get the cash flow from that sale, but your net worth also increases. Why? Businesses are valued in many different ways, commonly a multiple of gross revenues or net earnings.

CPA firms, for example, are often valued at 1.1 to 1.2 of gross revenues. So if I add $10,000 in revenue to my business, not only do I keep 50-60% of that as hard cash flow, but I’ve also increased my net worth by $11,000 to $12,000 because I can theoretically sell that stream of revenue.

Anytime you read an article on BP, ask yourself how the author is making money. Most of the authors here are running business in the real estate industry. They are not taking a passive role by “investing” in real estate.

Look at BP in general. They make money by providing a platform and resources for investors to talk about investing and building their net worth. Josh, the CEO, originally started BP to ask questions about his own real estate investing. Once he realized the goldmine he was sitting on, do you think he really cared about aggressively building out his real estate investments? No! And he would have been foolish if he had. He needed to spend his time and energy on growing a business, one that will generate massive foundational wealth. And he’s done a darn good job.

My point is that if you salivate (like I do) when you read articles or books about generating massive wealth and you are not running a business, you need a harsh reality check. I was there once, and I left one of the biggest accounting firms in the world to strike it out on my own. I knew from a wealth building perspective, it was more risky to stay in my “secure” Big 4 job than it was to build something on my own.

The great news is that building a business isn’t the only way to generate massive wealth. You can also do so via a sales or high-earning W-2 job. High earning, by the way, means $500k+. While a $250k salary is great, they are a dime a dozen among real estate investors.

The only problem with a sales or high income job is that you cannot eventually sell your income stream. You have to focus on saving your net earnings or carefully exercising your stock options in order to build wealth. Compare that to the business owner who essentially “double dips” when they make a sale due to saving the cash flow and increasing the overall value of their business.

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Related: 12 Reasons Why Rental Properties Are the Best Investment

What’s the Point of Telling You All of This?

Too many brilliant minds are sitting in dead end jobs because they are too scared to take a leap.

Imagine if 100 percent of all the brilliant, or even halfway brilliant, people took a chance at striking it out on their own and creating something. What would our world look like? How fast would amazing innovations occur? These are questions I sadly ponder as I think about some of the friends I made during my corporate career—brilliant people who definitely have what it takes to start and run a business, but are content with their bi-weekly paycheck and not-that-fulfilling job.

Content. That’s a scary word. The only word that is scarier is mediocre.

Literally every person reading this article has the capability to start and scale a business. How do I know? You’re clearly interested in building wealth and improving your situation. You have tapped into the drive that many fail to ever find. Otherwise, you wouldn’t be on this site.

Start a business. Create something that people value and learn how to deliver more than their expectations. You will live a truly satisfying life and will build an amazing legacy for your children and their children.

Your business can even be real estate-related, such as a brokerage, development, or private equity firm. It can be a supplement to real estate, such as a CPA, law, cleaning, or other services firm. You can start the majority of these businesses with a minimal investment, and you can even run them on the side of your day job! But you must start some sort of business that you can later sell if you want to achieve massive wealth.

If you don’t have business building in you, then focus on investing in real estate. But do it with a business mindset. Refuse to be satisfied with a 12% IRR. Aim higher, much higher. Get creative in your real estate investing, and soon you’ll find that you’re running a real estate business under the guise of investing. You’ll crush it and be surprised by how far you can go in so little time.

Building out a rental portfolio, in my opinion, is an excellent way to build wealth. But to achieve lofty goals of massive wealth and true financial freedom without waiting decades to “get there,” you must build a business.

Summary

Investing in rental properties is a great way to build wealth, but it’s still relatively slow. Instead, start, scale, and sell a business to generate foundational wealth. That business can be real estate-related; tap into your current wealth of knowledge and get started.

My wealthiest clients made their wealth through high income W-2 jobs, sales positions, or owning and selling a business. They then moved that wealth into real estate to create a consistent income stream and enjoy true financial freedom. Many of these people live within their means and are not necessarily extravagant. You probably wouldn’t recognize that they are wealthy if you passed them on the street. But their wealth will outlast them and likely their next generation.

Investing in real estate should be slow and deliberate. It should be a focus, but only a supplement to your source of wealth building. Do not fall into the trap of thinking that investing in rentals will provide you with true financial freedom in a small number of years.

Do you agree with this assessment—or do you think rentals are a feasible way to build massive wealth relatively quickly?

Weigh in with your opinions below!

About Author

Brandon Hall

Brandon Hall, owner of The Real Estate CPA, is an entrepreneur at heart who happens to be good at taxes. Brandon is a real estate investor and CPA specializing in providing business advice and creative tax strategies for real estate investors. Brandon's Big 4 and personal investing experiences allow him to provide unique advice to each of his clients. Sign up for my FREE NEWSLETTER to receive tips and updates related to business and taxes.

242 Comments

  1. LOL. “10 years is way too long”…

    Actually, when most people retire in their late 60’s or early 70’s (if they get to retire at all), 10 years to financial independence is pretty darn impressive.

    The beautiful thing about real estate is that you DON’T need a high paying corporate job to retire early. Many of us are not in a position to make that happen. Yes, you still need patience… and I love that. Get rich quick schemes are a quick route to bankruptcy. Buy one property a year, live off your job, funnel your rental income back into your business, and plan to hit the beach by 50 to 55 yrs old.

    Why do so many millennials feel they need it all now, and rarely have a valid plan to attain it?

  2. chukwudi motanya

    At least 800k. In my opinion that’s a bit short if you want spendable cash flow. 10k a month is 120k a year. That’s a 15% cash on cash return. Def on the aggressive side.

    One of your better articles Brandon. Although def overlooking equity appreciation factor with investing.

    I agree with your point though but yea basically big time wealth comes from equity appreciation. More of that with having a business but can’t overlook the equity appreciation that comes with RE investing

      • Christopher Neeson

        I would have to agree with Rich even though I understand what Brandon was trying to get at.

        It’s True a business or other source of income can be a greater means to generate wealth over your average real estate investment.

        I have plans for both , but currently work a 6 figure producing job. It’s nothing to brag about but allows me to invest in my goals.

        Let me line something out right away in all this. 15% ROI or returned on investment is average in real estate investments.

        Pretty sure Kiyosaki had said something along the lines of you don’t just want to be average.

        3 of my purchases in 2015-2016 have shown yields of 215% to 420%. These are not your average found on Zillow , bought for asking price purchases. Sure they were on Zillow but I sure didn’t pay asking price or even close to asking price.

        I found people wanting to sell. An 8 unit listed for $237,000 I walked away with for $127,000 just to give an example. Instant equity, to top it off rents would more then cover a mortgage and insurance along with all other expenses if I had paid $700,000 for this same property.

        The biggest problem with everyone thinking real estate will build wealth is believing in the average advice from average people that invest.

        When I target something I invision my down payment being repaid in 3 months or less. I invision my property being completely paid off in 6 years or less, preferably 3 or less in my recent purchases. I then account for those latter 3 of the 6 years of income and partial cashflow to go towards updates. We are talking latest and greatest updates.

        Who isn’t going to want the latest and greatest over your standard rental with average updates if any ?

        This means I rent quick!

        All in all I can see what Rich is saying and why he would question if you can create wealth from real estate investing. From what I’ve seen you can. Between our current properties myself and my wife have added $260,000 in income over the past 2 years in which $200,000 could be considered cashflow by a CPA which my wife is.

        You can’t fool an accountant with numbers and I believe that’s accurate.

        Just remember listening to average advice will create an average outcome.

        Stay frugal my friends;-)

    • Andrey Y.

      Great article, Brandon. I am surprised you didn’t mention apartments as a way to generate significant and/or lasting wealth. Does that fall under the umbrella of “rentals”?

      Also, I would argue that a smart-spending single man earning $250k per year is wealthier and more financially free than a family man earning $500k with 3 children living in a $2M home with a mortgage in a high land tax area. I guess you and I have a different definition of wealth 🙂

      • Brandon Hall

        Thanks man! Buying apartments, in my opinion, is a business under the facade of “investing.” You buy an apartment building generally with the intention to increase the value through strategic decisions. It’s also a much larger scale.

        I’d agree with your second paragraph. No arguments here.

        • Caren Euster on

          Brandon,

          Your post may well be correct, but it discouraged me. I thought, then why listen to further podcasts when real estate is not the way to go, unless just supplemental to your employed income?
          There have been anfew podcasts addressing leaving your primary job for RE but the consensus seems to be negative in that, as a good job helps one be attractive for financing.
          For those of us in the good jobs is this then a relatively pointless side endeavor?
          If not would you expand on the idea of building a business?

          Thanks

          Caren

    • Jonathan Rivera

      Hi Brandon
      In my spare time I’ve been toying with this idea to try and start a little side business. This article is giving me that push. I see it being extremely lucrative especially if I stay in the social interweb environment that garners so much attention from advertising once you get a big following. I’m excited and will keep you posted on it.
      Thanks

  3. This article was confusing.

    Not sure what the writer is talking about with creating and selling businesses. Surely it takes years to create a business that is profitable enough for people wanting to purchase on their own. And if the business is doing so well…then why would you be so quick to sell it anyway?

    • Brandon Hall

      Hi BJ – I didn’t mean to imply that building a business doesn’t take a long time, it most certainly does. My point though is that your net worth will benefit more so from building a business versus buying rental property, unless you make buying rental properties your business.

      You don’t have to sell your business, but at some point you’ll want an exit. With my wealthiest clients, these exits have occurred at different stages of life. But the one thing they all have in common was building wealth via creating a business or being in a sales/high income job.

      • Jessica Renard

        Brandon: $2 million may mean massive wealth to most of the members on here, not some. Money Magazine still features a $1 million retirement jackpot goal. Most people live and work longer. And real estate investments can often mean a real estate business, though not necessarily. I agree with someone else here, that added revenue streams can make most sense foremost within the real estate fold, but not that someone must insist on $500K+ per year to consider they are building m a s s i v e wealth lol (and decidedly, not $250K+, as posited.) Especially considering you target $10K/mo cash flow… And then to say, well, a real estate portfolio exists after not prior to wealth… maybe your CPA business does not majoritarily serve people deriving income from real estate, whether residential rehabbing, commercial rehabbing, land development, resales, storage facilities, funding, or passive side rentals? And then the gesture that 10 years is a long time to build wealth, while also saying that it’s not wealth lol… I agree that rental-ready sells are often not how you want to get going, and thank you. And it’s not a pace of 1 a year that could mean “trouble” on a retirement savings plan, either… it’s not the wealth you are taking issue up with, but the when. And, you can’t genuinely do that and keep with a $10K/month module, unless your notes and your conversations got crossed…

    • Michael Williams

      Hi BJ, many businesses are built just so they can sell them away to do something bigger or do something they love more. I am sure you do business everyday with companies that belonged to someone else who built it just to sale it to a bigger company. Sometimes a company can grow so fast that it can get overwhelming. Then a bigger company offers an insane amount of money to take a growing headache off their hands. This happens quite often.

    • Steve Moody

      I thought the same. 10 years is too long, so why not build a business and sell it, while also working a high paying sales job … all in less than 10 years. I stopped reading when the solution to becoming rich and retiring was to work corporate jobs forever 🙂

  4. Michael Williams

    Brandon Great Article. I am glad to see that I am not the only one thinking this way. I am not disagreeing with your assessment that rentals generally take a long time to generate wealth: but the best part is that a business can help speed up the process. Let me explain…my goal has always been to grow my businesses and use the revenues to buy more real estate quickly. This way I can reach that $800,000 or more threshold to generate $10,000 per month more quickly. My real goal is only $20,000 per month to become a virtual millionaire as soon as possible mostly through my bisinesses. That’s a low goal for now but I still haven’t relinquished all of the limiting fear shackles yet. The job is no longer a hindrance, as of 4 months ago and my wife and I are celebrating the last of 201k (formally 401k) and income tax money being spent this week cleansing our financial system of corporate tokens. Yeahhhhh! No I am not crazy I’m just anxious and motivated to see how much wealth I can build without a job and double taxation. Wish us luck. Never mind we won’t need it because the bulk of the 201k was invested in our financial education. Again…great article.

      • I guess I am completely lost. Will you and Michael give a couple examples of wealthy people building businesses and selling? (just generic examples)

        I must live in a smaller world…lol. Doesn’t it take a lot of money to be able to build a business so profitable that people are jumping to buy it? And why wouldn’t you just keep the business if it is making so much money that people are eager to buy it?

        • Brandon Hall

          Hi BJ – you’d be surprised how many millionaires are likely in your community walking by you every day. I have clients that have built up businesses to $5MM in revenues and sold them by the age of 35.

          The reason to sell is complex. Entrepreneurs, the original founders, are typically better at creating than leading, and that’s what they enjoy doing the most. There’s a natural point in any business where the business will need to change leadership in order to experience further growth. For accounting firms, that’s usually the difference between a firm billing $1MM gross and one that bills $10MM gross. Generally, the entrepreneur has to get out of the way.

          Liquidating is a great way to realize the fruits of your labor. When you’re grinding away, you have to worry about literally every aspect of the business. You are likely working long hours, so your hourly rate is so darn small that you consistently question why you are doing what you are doing. Once you can finally liquidate, you get a large payout that makes it all worth it.

          I have a client that built up a services firm and sold if for $8MM. Prior to selling, his salary was $60k. Based on the way they structured the deal, he received $3.5MM upfront and will receive a $250k salary plus a $900k payout each year for four years. So he has to work with the company he sold it to, but he loves it and he no longer has to worry about invoicing, paying business bills, hiring/firing people, etc.

        • John Bierly

          The Millionaire Next Door gives a lot of examples of this based on academic research. Robert Kiyosaki’s Rich Dad series does as well although more anecdotally. It was also my personal experience, having what is know as as a “liquidity event” selling our company to an private equity group – the proceeds from which I now invest in RE for the reasons Brandon describes.

  5. Kevin Yeats

    Thanks for splashing a cold cup of realism in the face of so many RE investors and a full bucket of realism water over the head of the gurus selling their dreams of wealth.

    I think many RE investor get started due to the bad taste left in their mouth every time the stock market tanks and they look at their 401K (or 201K). I suspect (without proof) that many markets have been picked pretty clean by established RE investors and new investors have a tough time both from trouble finding deals but also from a lack of experience.

    Please read The Secrets of the Millionaire Mind by T Harv Eker and then read Speed Wealth also by Eker. I have an ebook copy that I will share only with Brandon.

  6. Sami Senoussi

    2 problems with your article

    1- The title is “rentals won’t build massive wealth” but the actual content of the article flips it to “it can but not quickly”.

    2- I’ve never even been to the United States but your numbers sound insane to me (and many others apparently). For example, in Japan you can buy million dollars properties with full financing or down payments of only 10% with ROI of around 5-10%. You can build that 800,000$ of equity and 10,000$ a month cash flow in a decade with minimal effort provided you earn a decent salary. I know loans aren’t as good in the US but surely the property appreciation more than makes up for it.

    • Brandon Hall

      Hi Sami,

      1. I don’t control the title of the articles. BP uses SEO strategies, of which I’m clueless so you’d need to email them.
      2. I’d be surprised if you could build out that level of equity even with favorable financing terms if you are merely investing. When you are investing, you are placing that 10-25% down every time. You will run out of cash or the banks will cut you off. If you are making rentals your business, it’s a different story as you can navigate low financing or raise private funding.

    • Scott Pigman

      Sami,

      So you’re saying you can buy a 1,000,000$ property in Japan for a 100K$ down payment.

      Then you make 10% ROI on that. 10%*100,000$ = $10,000 a year.
      If you reinvest all of that every year you’ll have 200K$ in equity. $100K down + (10yrs * 10K%/yr) = 200k$. I guess maybe that Japanese properties are so well built they have no expenses.

      To get to 800K$ equity in 10 years you have to pay off 60K$ of debt every year for 10 years. And that’s not even considering interest on the debt.

      I thought I made a pretty good salary but it’d take me a lot more than minimal effort do that.

      what am I missing? Are salaries that good in Japan? Where do I apply?

      • Sami Senoussi

        1- My bad Brandon, I thought the title was your decision, I apologize for my remark.

        2- Scott, Here’s a real life example that came by me a few months ago:

        Property details: apartment block, 163,000,000 yen, 19 rooms, total rental income of 15,450,000 yen a year.

        Expenses (including taxes, parking, common area electricity, etc.): 4,355,588 yen a year.

        Loan Terms: Full loan, 31 years, 1.5% interest rate, 6,578,184 a year for repayment

        Total net income per year: 4,516,228
        That’s around 40,000$ a year in net income provided there are no vacancies.

        “To get to 800K$ equity in 10 years you have to pay off 60K$ of debt every year for 10 years. And that’s not even considering interest on the debt”

        Add 20K out of your own pocket (again, provided there are no vacancies) and it’s done.

    • Michael Williams

      Hey Sami the title for this articles used what is know as a”Pattern Interrupt”. The goal of a Pattern Interrupt is to make a statement that has Shock Value and will get you to perform a certain Action. It Basically interrupts your normal thought patterns, thus getting you to engage in this excellent discussion. It worked on me as well. Great Job Brandon.

  7. Jason V.

    I’m torn on this one Brandon: On one hand, this is a solid article with some information that a lot of folks need to read. On the other hand, you refer to Grant Cardone in a favorable light, and he’s about the biggest douchenozzle in the World, so you lose points for that.

    Maybe an important counterpoint to what you’ve said here is that people’s chances of building wealth (I won’t say MASSIVE wealth, because that makes me sound like a douchcanoe Cardonite) is probably still better with investing in Real Estate than it is with trying to start, build, and then sell off a business.

    As an experienced CPA who has worked primarily with businesses, I would think your viewpoint is skewed towards the positive. Most of the people I know who own (and operate out of necessity) a business have a pretty poor quality of life, and pretty poor income to boot. You probably haven’t seen it because they can’t afford a CPA…or a bookkeeper, or office manager, or most other things. They have to do it all themselves just to stay afloat. Many of them don’t really own a business, they own a job – and owning your job (whether or not you call it owning a business) is pretty much impossible to sell off. This is doubly true in what I’ll call the “commodity” businesses, like landscaping, masonry, carpentry, etc. that also happen to be the most frequently owned businesses (and the easiest to start.) I’m actually surprised a CPA can sell off their business for as high as 1.1 times their gross revenues – I’ll take your word for it, but I would also guess that’s specific to certain markets, and not the 80% of the country that most of us live in.

    And of course there are folks who can take these jobs and actually build them into real businesses, and expand them from there into bigger and better things – but no matter how many times the self-helpers tell them “just think bigger!” the reality is, very few people have what it takes to turn a local business into anything that will ever net them 100, or 10, or even 1 million dollars when they’re ready to sell. And that’s if they can sell it at all.

    Lots of people read self-help books (and business books, and investing books, and whatever else) and lots of people put a lot of effort into trying to make those things happen. But I think we all need to get real and accept that there are a select few people who have the right idea at the right time with the right mentality and the right skill-set to become wealthy on the scale you’re talking about, quickly. That’s why there are so few Billionaires running around. But if folks consistently work smart and hard, and invest intelligently and conservatively, almost anyone can become financially independent, well before “retirement age.”

    • Brandon Hall

      I feel the same way about Cardone, but if you look at what he’s done objectively, it’s pretty darn impressive how much wealth he has built.

      I supposed this article stemmed from me realizing that most wealth individuals didn’t get there merely through investing in real estate, and more than half of the employed workforce is unhappy with their current job situation. For me, it’s more risky to sit in a bad job than it is to take a chance at building something.

      • Jason V.

        I absolutely respect what he’s done with his company and image, and at the end of the day, he’s worth $100 Million Dollars and I’m not, so anything I say is sour grapes. 🙂

        And I agree with your article – the only thing I disagree with is that there’s a better choice than real estate for most people. I think most folks get into REI like they get into any other business: without a lot of planning or thought. That’s why most new businesses fail, and it’s why most folks won’t have the success they want with real estate.

        They may not get mega-rich, and they may not get rich anytime soon, but I think they’ll wind up wealthier investing in real estate than if they start a business, the majority of the time.

      • Michael Williams

        Best Paragraph on this page Brandon, either invest in your mind to grow a business you can sell or stay miserable on a job you hate. Your financial freedom and wealth can happen because of you or not happen because of you. The common denominator is you.

    • Tony G.

      If you’re going to buy rental property buy something that appreciates. Like single or dual family houses. If you can find a gem that needs a bit of rehab in an upcoming area, that’s your ticket. Apartments don’t appreciate like homes do.

  8. Jared Adamson

    This is a great article. Unfortunately, I think it is very true. I have been investing now for about five years and it really gets frustrating when you have really high expectations. If you live in an expensive area and you don’t have an extremely high paying job you really have to have patience in real estate investing! It’s refreshing to read truth.

  9. Jerry W.

    Brandon,
    Deep article. I have found from my experience that real estate is a get rich slow business. I did not truly understand cash flow when I started in it over 20 years ago, and find that even now in my area cash flow is nowhere near what folks are getting in other parts of the country. I actually have no idea what the value of my real estate is, but estimate that it will be worth well over $1 million in ten years if I do nothing but make payments on principal from rental income. While 30 years to get to one million sounds awful, keep in mind I have probably only added $50K of my own money into the business and a lot of time. My first 12 years it was more of a hobby, for about 8 years it became a lot more work when my investing partner moved out of town and I took over managing the rentals. When I bought my partner out 3 years ago it began to consume nearly spare moment I was not at work. Of course I have nearly doubled the gross income in the last 3 to 4 years. I ran on the principal of if I have a 15 year loan and 10 properties in 15 years I will own 10 properties free and clear, so buy as many as you can. That also creates it’s own problems. I also found I had to keep cashing equity out of my older for the down payment on new purchases. The end result is expansion of properties, but very little true cash flow. I am now contemplating retirement so have decided to slow or stop expansion and concentrate on paying down loans. Using the snowball effect I should be able to pay off all debt in about 10 years. Since my mortgage payments are in excess of my gross income from my W2 job, when paid off my retirement income will be much more than my current income.
    Overall get rich slow has worked for me.

    • TJ P.

      I’m in your camp here, Jerry. This article screams “YMMV” and should be added to one’s arsenal to mull over if needed.

      My current plan (fairly passive, modest cashflow) requires some capital on my part but really starts to compound and snowball in years 5- whatever. By the time I’m at my magic, bye bye W-2 replacement #, I am hopefully contributing WAY less then 800K and not concerned or worried about starting, building and cashing out a separate business.

  10. Colin Conway

    In full disclosure, I’m a commercial real estate broker, but Brandon is a CPA so he also has his bias. I don’t think that makes either point less valid. That’s what a discussion is for, right? The article has its merits and I enjoyed seeing a different argument.

    Like real estate or the stock market, “starting a business” has its risks. I invested in a business over a year and lost my $70,000 stake when it failed to take off. We missed the market and that’s part of the game. I can’t cry about it. I knew the risks going in. I’ve worked with successful entrepreneurs who have moved into a new field and gotten a dose of reality. Unfortunately, it happens. The article seemed to downplay the risk associated with starting any business.

    High income W2 employees get downsized when the economy turns sour. They get downsized when a new system is invented to replace them. There is no safety in the W2.

    When the market tanked in 2008, I owned Washington Mutual stock which essentially vanished and was taken over by Chase Bank.

    Today, I can drive to any of my properties and stand on them and touch them. They aren’t going to disappear if the market turns. If something bad happens, they are insured. I have leases in place with the tenants (both commercial and residential) and have done my best to insure they are solid. I can drop the rent and get aggressive if they are vacant too long.

    It might be a bit slower and less sexy, but real estate is making me wealthy.

  11. Paul Merriwether

    Great article I agree with. In another posting a guy mentioned buying property here in the Bay Area and has accumulated $2.2 m I think in appreciation in a little over 3 yr’s!!! Timing and the right market can produce significant returns quickly in real estate. Waiting on rental income won’t do it. There are lots of roofs, toilets, sewer pipes to fix alone the way and many that are very costly repairs that will delay that monthly wealth!!!

  12. Tim Nelson

    I suppose if the end goal is to get “massively wealthy” then I suppose You’re right. Big money, big happiness, right? Wrong. I’m a young man, but I think most people go into real estate for financial independence, rather that massive wealth. And I believe that financial independence is certainly attainable through 5-10 years of solid RE investing. Most businesses can’t generate that, since they don’t leave you with passive income after the “work” is done. My dad started buying rental properties in 2013. For 25 years before that he was a portrait photographer who ran his own business. Today he has about 15 college rentals and lives quite comfortably in northern Wisconsin. It only took him 4 years. He never got there with his previous business. No, you’ll never read about him on Bigger Pockets, but he works when we wants, sleeps in late, and spends a lot of the summer fishing and the fall, hunting. So, I can’t say I disagree with the article, but I think it might have missed the mark of why real estate is really so attractive.

    • Paul Howells

      Unrelated, but I happened to click on your profile and see you’re from Menomonie. I lived there from 2004-2012 and graduated from Menomonie High and Stout. Small world!

      Also, congrats to your dad. Sounds like he made the right moves!

    • Brandon Hall

      Great story Tim! I never said real estate was unattractive. I continue to invest and build out my own portfolio diligently. I’ve just noticed an undeniable trend that folks who are pretty darn well off didn’t get there by investing in rentals. They spent their time building out other income streams and switched to rentals later on or had rentals supplement their main income stream.

    • Steve Faulkner

      Excellent real life example Tim! And I think you are right on the money about what most people here are seeking – the freedom to live life on their own terms – freedom from the 9-5 – not massive wealth. Running a business is a huge investment of time and usually money, and there is definitely a lot of risk. There are those that strike gold, but that is not the norm.

      My wife and I are are in the “all of the above” category.
      – We worked hard to get educations and high paying W2s, and I’m still working hard to keep that high cash flow.
      – We use the cash flow to build capital for investing and loans, have made slow growth money in smart rentals (after some stupid rentals)
      – We made money in flips
      – We started a business

      To “vindicate” Brandon, it really is the business that is generating the most extra income and assets for us right now. It has been and continues to be a lot MORE work than just a 9-5! But with a lot of satisfaction as we see our creation succeed, and with a lot of hope for the future we will be able to create by continuing smart investments of our cash flow. We are building wealth and getting there, with a lot of hard work and some “measured risk”, and enjoying life along the way even with all the work.

  13. David Krulac

    Brandon Hall, Thanks for the thought provoking article. I hear the same desire from many want to be investors that they want rentals to enable them to quit their day jobs. Hard to make happen though. However, I didn’t use your 3 suggested paths, start a business, high paying sales job, or high compensation executive level job.

    I started with nothing and bought my first 11 properties essentially 100% financed, because I didn’t have extra money for down payments. I told the story of the first purchase in Bigger Pockets Podcast #82; which I later sold for about 4x what I paid. The second purchase was a multi-unit, where I grossed nearly 3/4 million in rent and later sold for 6x what I paid.

    I’ve bought and sold over 900 properties and it has been a combination of bargain purchases, buy & holding, and selling for a lot more than purchase price. Another example is a property that has generated $250,000 in rent and if sold would sell for 11x what I paid. I’ll be holding that property for a few more years to capture more years of rent before I sell.

      • Lyle DeGraff

        You beat me to the punch Michael.
        David built a business plain and simple. His product is real estate.
        It sounds like he is great at “buy low, sell high”, however talking about gross rental income makes the numbers sound great, but is not the NET (which is all that matters).

        David, you have built a business with great margins and that is AWESOME!!!
        It is the massive action, backed by your knowledge and experience that got you to where you are.

        If Brandon’s article is accurately read, it speaks the truth. Nice job Brandon!

  14. James Masotti

    Brandon – Fantastic article. Too many people miss the difference between passive investor and active business. Always need to consider the hustle factor…whether that’s building a business outside of real estate or raising private fund. It’s going to be very hard to scale quickly otherwise.

  15. Jerry Kisasonak

    Great read. My thoughts are that if you treat your real estate investing like a business (doing more than buying one or two SFDs a year) you can do very well with it. If you take it slow, you can build a sizable income in a mere 10 years, much better in my opinion than the old way – 40 years of hard, time/life consuming working in a job.

    The reality is that the net worth of the average American age 35-44 is around 14K excluding their primary residence. Considering you can capture that much equity/net worth in a single purchase, you’ll be way ahead of the curve by going the real estate route, even if it’s just a side gig for you.

  16. sean ploskina

    I think some folks have missed the forest for the trees on this one.

    I took from this that having a more clear and defined plan of wealth building is what is important. The idea of rapid massive wealth through small rental portfolio is accurate it is cash and time intensive. Brandon is correct that running a business around real estate and investing the profits would significantly accelerate the process.
    Know what you really want what it will take to get there is the point I got.

  17. Kurt K.

    There is a MAJOR flaw in this premise… I won’t debate the specific numbers, but the underlying assumption is flat out wrong.

    Let’s say you do need $800,000 in equity but that equity doesn’t have to be cash out of your pocket. So you don’t need to “Save up” $800,000 in cash to achieve $800,000 in equity to achieve $10,000/mo income.

    That being said, obviously building a massive business for yourself would do the trick too. However, statistically speaking you are much more likely to “make it” in real estate.

    • Brandon Hall

      I never said you had to spend $800k at one time. I said that in order to achieve a $10k per month cash flow, you’d need around $800k in total equity. Regardless of your investment strategy, that will take quite a long time to build.

        • Kurt K.

          The point is that you can have $800,000 without “saving up for it”. Your renters can build your equity, you don’t “save it”. you can buy under market value, you don’t have to “save it”. you can add improvements that more than pay for themselves, you don’t have to “save it”.

          Lets recap:
          I stated: “you don’t have to save up $800k, to achieve $800k in equity”
          You recently stated: “I never said you had to spend $800K at one time”
          I mentioned nothing of spending anything at one time, or having to do so. I don’t know why you replied as if I did.

          I merely said you can have $800,000 in equity without putting in $800,000 of your own money, which is what “save it” implies.

        • Mike Allen

          — This refers to your last comment —

          Great, you’re going to “leverage” $800,000 in equity to cash flow $10,000. Now, how much will you actually “net” after you pay your loans + interest? Because, remember, you didn’t actually save up or spend that $800,000, right?

        • Mike Allen

          Believe it or not, in some markets it is doable, albeit if the property hit the market it’s too late. I’m speaking as an eyewitness of a deal where a 38-unit apartment complex was sold and closed (includes loan fees) for $990K. This property “nets” its new owner after expenses, taxes AND — get this — mortgage: 9K per month. This is not the typical market value of this complex which admittedly was sold off-market for about 50-60% less than its real value. But the seller was in rush and had to sell, and the buyer was at the right time at the right place. Extra-ordinary example, granted. Nonetheless, I bear first hand witness to it. And no I was not the buyer, even though I really really wish I was.

  18. Graham Mink

    I have read many articles on BP over the last 4 years and this one, in my opinion, is the worst. It is simply untrue and discourages people from using real estate to achieve financial independence. I am not a guru, I have nothing to sell. I am a small multi family investor who has achieved financial independence in 4 years using methods I learned about on bigger pockets. I didn’t start with $800k in cash, heck I started with $5k and now have passive income which supports my family. You base your post strictly on your own experience, market and customers. Your reality isn’t everyone’s reality and your experience is just a small sampling of what is possible. I encourage you to branch out and look for other examples of how people have used rental investing to create significant wealth and passive income in short periods of time. A not so famous quote comes to mind:
    “Whether you think you can or you can’t, you’re right!”

    • Brandon Hall

      Hi Graham – I’ve spoken with quite literally thousands of investors across the entire U.S., even a few internationally. Some highly successful, some woefully unsuccessful. The highly successful, the ones with more money than they’d ever know what to do with, did not use “investing in real estate” as their primary wealth building strategy.

      You can’t argue the fact that many people, heck even myself included, get into real estate because they think that they can quickly build a rental portfolio and leave their dismal day job. The point of my article is that, for the most part, those people have been misled.

      And if you are investing in real estate full-time, I’d argue that you are not actually investing. Instead, you are building a business and rental properties are your product. There is a huge difference.

      • Caren Euster on

        Brandon,

        Your post may well be correct, but it discouraged me. I thought, then why listen to further podcasts when real estate is not the way to go, unless just supplemental to your employed income?
        There have been anfew podcasts addressing leaving your primary job for RE but the consensus seems to be negative in that, as a good job helps one be attractive for financing.
        For those of us in the good jobs is this then a relatively pointless side endeavor?
        If not would you expand on the idea of building a business?

        Thanks

        Caren

    • Joseph Delia

      “I have read many articles on BP over the last 4 years and this one, in my opinion, is the worst.”

      How funny, I was thinking the exact opposite. It is one of the best because it dispels a lot of popular notions that are taken with gospel amongst our community but in reality some of the most successful of us (myself included) are starting from a position of high salary/small business strength PRIOR to real estate.

    • Mike Allen

      Graham, you’re right but you are also missing Brandon’s point!

      He’s conceding that you can build a wealth via “Real Estate Investing” albeit it will take a long time. He’s cautioning of the required “cash” to keep paying down payments if you want to buy more than one or two properties per year.

      Not everyone is able to start, run, build, and sell a business. He conceded that.

      Some folks like to do it slowly but surely. He also conceded that in another reply.

      Rental real estate property, on the other hand, one that you actively manage (probably employing your family or close friends – or even better complete strangers with operation controls in place) is a business. You have a product to sell, you have marketing budget, you have a payroll (or at least 1099 employees), you have suppliers and vendors, you have maintenance contractors, you have books and general operating budget, you have reserves, and you have clients; your tenants!

      If this is NOT what starting, running, building, scaling a business looks like, I don’t know what is.

      I will concede that Rental Real Estate Properties, along with property management in general, is great way to buy and hold Real Estate. You can pass the “business” along with the real estate to your children or .. yeah .. sell (liquidate) it and retire when you feel it’s time to rest, if no family member wants to take over.

      I understand that Brandon comes across as deterring from buying RE to rent. He should have clarified he meant “passively buying and renting RE” and especially NOT including multi-unit rental properties. I hope this elucidates Brandon’s otherwise excellent article.

  19. Justin R.

    Very insightful and well written – a large percentage of people would be well served to have exposure to this reality. Only 2 things I think weren’t covered explicitly enough by my favorite CPA colleague (!):

    1. All of the suggested actions – starting a business, a sales job, or a W2 with equity participation (options / grants) – are also very low success rate strategies. Start a business? Yes. But, know that you’re more likely to fail or only see moderate success than build quick, tremendous wealth.

    2. This is really a question of where you spend your time, energy, and focus. A rental portfolio with 10 units may demand 5 hours of time per week and involve little risk. A business may demand 50 and involve much risk. The wealth multiple should be AT LEAST 10x for starting a business, but that doesn’t make it the best use of one’s time.

    That said, many props to @brandon hall for these articles – fresh content, deep treatment, and well written!!

    • Brandon Hall

      Hi Justin – two very excellent points that I wish I would have thought of. I can’t agree more that on an hourly basis, my rentals extremely outperfom my business.

      I’ve always wondered about the “business failure” rates though. As in – how do they come up with the data? Because we open and close companies all the time but it doesn’t necessarily mean they fail. Maybe this is something I can dig into more.

  20. Brandon — Phenomenal article and one that every single new real estate investor should read!

    As some responders noted, I agree equity appreciation can be a “liberator,” but refinancing and putting that money to work requires time and effort. Doing this and self managing to protect your margin and accelerate growth is more like running a business.

    Thanks for writing this!

  21. J.D. Sommers

    Well guys I think that there are multiple ways to do anything. And no one knows all the ways to invest in multi-family. I personally have invested 167k and am at 6500 monthly cash flow and have done that in two years. Of course you can not do this with some turn key property but it can be done.

      • Kurt Gardner

        50% rule, cost control, and diligence. I’m slower, but very similar. Since 2012, I’ve put in approx $60k cash, own 500k equity, with an average DE 50%, and we get right at $1,500 flow (all SFH except one duplex). Some cost overruns have hurt, lol. I’m good with it, and we are transitioning to multi-family exclusively for the future. Timeline 3-4 more years for full bye-bye W-2. It’s all about perspective, realistic goals, and steady money management. Minimal risk is the thing I love the most. Blessings.

  22. Mark Trebor

    Hi Brandon, Great article can you quantify “massive wealth”? Your statement , “While a $250k salary is great, they are a dime a dozen among real estate investors.” Was a little shocking and I found myself a little uncomfortable reading that. Which is where my question about exactly what you mean by, “massive wealth” comes from.

    • Brandon Hall

      Hi Mark – I’m talking $10MM+. It’s not really massive, I just like to think big.

      For the $250k salary – I meant that among real estate investors, you’d be surprised how many are earning about that much. I’d say that, among the folks I’ve spoken with, $185-$300k is the norm. Which of course has completely opened my eyes 🙂

  23. Mark Schmitz

    I am pretty new to BP however I am a real estate investor. I agree with Brandon with the fact that rental investing takes a long time and like any investment is subject to cyclical peaks and valleys.

    However, from the little bit that I have read about BP is the fact that they are getting people to think out of the typical “cubicle” 9-5 box and think of ways to generate wealth with an entrepreneurship attitude. After all when you are the “driver” you take charge and pursue the goals you want with no one holding you back.

    Is BP spinning off from real estate into business brokering? The majority of the extremely wealthy that I know have all had some real estate pieces in their portfolio however have made their major wealth buying small to mid-sized businesses making them profitable then selling.

    I think that with 77 million baby boomers retiring there is probably a huge surplus of Mom and Pa businesses that do not have successor plans within them that just need a few talented millennials to take them from a decent profit margin to the next level. I know there are some typical business brokers you can find “BizBuySell”, “BusinessBroker” etc. however it would be neat to see if BP jumped into the small business world like they did with real estate.

  24. Eric Bowlin

    You missed the fundamental part of “creating value.” You are essentially looking at ROE and not ROI.

    10k cash flow/month, 4 years, 100k initial investment. Is it possible? Absolutely, I did it. Is it pretty easy? I thought so. Can everyone do it? I believe so but maybe I’m wrong.

    You are not 100% incorrect, though – the equity part of my investments are worth around 800k, give or take. What you missed is that the strategy is to create value and I created far in excess of 700k in value. So my ROI is in excess of 100% per year, but ROE is 15% like you suggested.

    • Brandon Hall

      By “create value” you are talking about buying, rehabbing, and holding? If so, I’m inclined to argue that you are not really investing, rather you are running a business. One that uses rentals as a product to deliver value.

      Shoot, just by your statement about creating value I know you are thinking like a business owner. That’s what I feel more people need to focus on.

  25. John C.

    Great BP article which is very applicable to the San Diego market where cap rates are historically an average of 3.6%. $100k/year net income would require $2.8 million in equity. Timing the market well can create a lot of equity, but $2.8 million is not an easy feat and would take the majority of San Diegans many years to accumulate (if not decades). You can see there is a bit of a debate going on in the article comments.

    My experience is that the differing experiences/perceptions on what’s possible with rentals are derived from the fact that people are investing in different markets (location in the US dramatically effects potential cap rate), different economic timing (it’s not 2008/2009 anymore), and different approaches (investor versus business hustler). You cannot deny that the proof is in the pudding and if Brandon is seeing the genesis of high wealth in his customer base (on average) being one of his 3 categories (such as business ownership) — it should make you pause and consider this. Personally, the wealthiest “investors” I know are actually commercial developers, property managers, and brokers (they run or ran a business and supplement their income with rentals).

    Brandon’s article is also inspirational in the sense that it speaks to what I consider guaranteed failure “settling for the deferred life plan” versus taking the chance to start your own business (which can be sold). Props to Brandon for writing this!

  26. Eddie V.

    Brandon, great article again. Btw, I’ve been waiting for a few months for you to send me the spreadsheet update. I’d appreciate getting that asap or perhaps you can refund me. No hard feelings. Lmk. thanks! Eddie

  27. Michael Woodward

    Brandon – I absolutely agree with your article. You’ve taken it on the chin from a few of the replies but I think most of it is just the lack of understanding your main point. Some of it is arguing the details (numbers) but a lot is the inability to see the world from your perspective.

    In my own (recent) inner search for the very best return on my time, I realized that building (and/or selling) businesses has far greater potential returns than anything else. The world has seen many billionaires created in the past 20 to 30 years (several while still in their 20’s) doing this very thing. None of them got there by (only) building a large rental portfolio. Bill Gates is the poster-child of what you’re describing. I personally know people that sold their businesses for millions over a period as short as 10 years. Not everyone can duplicate that success but some can and will. The potential is there.

    Not everyone will see or understand what you mean because they haven’t reached the point in their life where they can see the same horizon you’re describing so don’t worry about the criticism. You’re a brave man to put such a introspective idea out into the BP community but I’m grateful you did. I’m on a similar journey so it’s nice to hear from like-minds.

    • Joseph Delia

      Nice comment Michael. Only one nit, I don’t think of Bill Gates as the poster child. The whole become a billionaire by not finishing college and building technology in your garage makes for nice visionary conversation but it is not the reality of becoming wealthy through small business. It’s more akin to lottery winning.

      The reality is that small business can be extremely lucrative (don’t forget the tax treatments!) building a business that no one has even heard about except for your handful of clients. Just my 2 cents (I have a bit of a pet peeve when politicians/people use the garage example as the small business example we should aspire to, it’s not the practical example).

  28. Great article and has reinforced what I have been pondering for quite some time. I have a dear cousin that realized this before you and I . He originally was buying property to fix and flip and while he was doing well at it, he forged a new path. Now he specializes in buying e-commerce businesses with (seemingly insurmountable) problems and turns them around. He buys them and within a year, has them extremely profitable and leverages the cash flow to buy others. Last I heard he has 4 or 5 e-commerce sites that he’s paid anywhere from $50k to about $500k each. He has some capital he uses for equity but for the most part, the US govt recognizes him as a small business owner so he borrows from the SBA to but these businesses and he goes to work making them profitable. Has opened my eyes.

  29. Lani A. Payne

    Hi Brandon! It’s been a while since we last chatted! Glad to have read this last article! Last time we talked, I was still at a Big 4, myself, and have now moved to a smaller law firm specializing in tax law, estate planning, asset protection, and wealth preservation strategies. Totally Agree! 9 out of 10 times my high net worth clients have generated their wealth through businesses! And yes, I tend to pick their brains, as well! Smart people surround themselves with even smarter people than themselves! Glad to see you are doing well!

    • Mark F.

      Not at all! Real estate is a fantastic way to build wealth and financial security. The point Brandon is making is that if you want to build multimillions of wealth, you might be better off starting a business that you can sell (and still do real estate thought). However, if you don’t care about being the next Grant Cardone, even a relatively small real estate portfolio can make life much more financially comfortable. Happy investing!

  30. Great post! Couldn’t agree more! Rental properties are a great way to diversify INVESTMENTS. Not necessarily a great way to build wealth. The really rough rule of thumb that I use is that what I pay for a property is equal to just putting that money in savings and drawing off of it for 30 years. The upside is that with a rental property, after 30 years I get to keep drawing.

    That being said, I’m not in the real estate BUSINESS – just use rentals as a way to get a good return on the money I’ve earned.

  31. Carl M.

    Trying to understand your theory here. So what if someone had $800,000 in other investments. Would you recommend cashing out and buying properties with that cash? Owning them free and clear and generating passive income? Would you do single family homes or multi-unit? What are your thoughts?

  32. JAson Stern

    I have never posted on BP before but the title of the article really interested me. I have spent the last 4 years building a 300 unit+ portfolio, with another 300+ coming just this year, from nothing through buying, rehabbing/building and refinancing. This is obviously my full time job and I have created 10 full time jobs within my company. I have met some pretty smart people in the business and some pretty dumb ones.

    I think what you are getting at in this article is that holding a normal job and buying a rental every few years will not make you rich. People with high incomes (i.e. doctors and lawyers) can do pretty well but they are not making anything close to average.

    Rental real estate is a business and requires a commitment to make big money. It also requires raising money, spending time developing contacts and spending time searching for deals that actually have upside and that will cash flow. On the other hand, the reason there are so many dumb people in Real Estate is that if you hold it for a long time it is very forgiving. I have seen many people who do not really know what they are doing make a lot of money from real estate but there was a lot of speculation involved.

    At the end of the day, buying rental property is usually better than stock market investing (In my mind the stock market is a scam). You just need to have a realistic view of what will happen to your investment. I have a friend who bought a 4 unit building with 3% down, rehabbed it and within 1.5 years had a huge bounce in rents and is now pulling in 7k cash flow per month. He did the right thing by looking for a value -add property that cash flowed and just got lucky with the rent bump.

    It is also not unheard of to have people start out with a salaried job, do some real estate work on the side and then use that success on the side to quit their jobs and actually raise some money.

    All I can say is be realistic, be smart and think of the long-term.

  33. Nancy Bachety

    IMO, Brandon has successfully written the words that BP consumers have subconsciously known all along: the vast majority of bloggers and BP contributors are those who have a business. Brandon selflessly uses himself as an example, and refers to Josh to second his notion. Every podcast ends with “how can listeners get in touch with you?” Why? because they made it their business.
    Real estate investors and successful business owners build wealth partly because they learned how to consume debt and leverage it. This was a foreign concept to me growing up (pre-BP) and remains so to the masses. (Think Suze Orman and Mr. Money Mustache.) If you are adept at this and educate yourself by whatever means works best for you, then you have exactly what Brandon refers to in his article- the readers here are quite capable. And some think like Grant Cardone (10X) and others have self-doubt and many are in between.

  34. Krista Riggs

    10-15 years to build wealth through rentals (with a massive 10K /mo cash flow) sounds really fast compared to 99% of the population who will have to work 40 years socking away maybe 10% of their income so they can retire. Even a slow and steady pace with the property snowball method (reinvesting all rental income) should get you there relatively fast!

  35. Bob Gardner

    So, You can get rich quick if you make over 500K a year or sell a business worth millions. I get that. And yes I agree that real estate investing is not as quick. But the problem is there are thousands of sales people that never break 200K and many businesses that never sell for millions. How do I create a business worth millions? The most important part is missing. I will continue to invest in real estate simply because I know it works and I know how to do it. I have no idea how to create a business worth millions. Well … except my real estate business 🙂

  36. steve potash

    Hey Brandon,
    Sorry, but I have to disagree with you. I like your podcasts and writing, but the methods you’re talking about investing in real estate is the way newbies invest. You don’t wait a year to buy a property because you have to save up $30k for a downpayment. This is not how successful people invest in real estate. You forgot to mention multifamily, cap rates, value added properties, etc. If you want to look at rental properties and wealth, don’t use what a newbie would do, use the methods of an experienced investor. Plus you mentioned businesses, sales people and stock option for becoming extremely wealthy…..
    1) how many business are there in the US, and how many of them are worth $10m after 5 years. Probably much less than 1%. And the ones that did hit $10m, probably started with a lot of investment money.
    2) how many sales people are there in the US, and how many of them are worth $10m after 5 years. probably much less than 1%
    3) how many people are in the corporate world and how many of them are receiving huge stock options after 5 year, again probably much less than 1%.

    Instead of taking the less than 1% that made it in business, etc and using them as a reference to compare with a newbie investing in real estate, take what the average business, sales person, corporate person makes and compare it to an experienced investor, and I’ll bet the experienced investor’s wealth will be a lot greater and the amount of time that they work is a lot less.

    • Lyle DeGraff

      Steve, you clearly misunderstood the root of the article. I would suggest going back and reading the followup comments to help you better understand what was said in the article.

      You are talking about running a business using real estate as your product. Brandon is talking about the rate of growth from a person investing (passive income). That is not “newbie investing” as this is the type of investing wealthy people do when putting their money to work passively via real estate, because their investment money is derived from a successful business or a sale of one. Don’t lose faith in Brandon. You just misread the article.

  37. Rob Barry

    More or less agree with the central premise. I always wanted to get into buy-and-hold RE but waited until my 30s so I could first build a small business and get some working capital. After being inspired by a great BP episode, my wife and I now live off her salary for the most part,
    and almost all of my business income is free for investment. Nice to be able to reap the benefits of a cash deal.

    I still think the returns are far better just buying smaller online businesses. But you can’t leverage a website like you can a house!

  38. Mike Dymski

    Great article. Many real estate investors, rich and poor, are looking for ROTI (return on time invested). There is a reason why investors pay 10-20x earnings for commercial real estate and 2-5x earnings for your CPA firm.

    The sweet spot, IMO, is getting that 10-20x multiple on value adds (or market appreciation) with as little “business-like” activity as feasible (i.e. having 3rd parties manage the value add).

  39. scott neudecker

    Holding real estate is the safest and surest way to wealth but certainly not the fastest. Starting, running, growing and selling a business is faster but riskier. I have started three other businesses with no success. I might give it a couple more tries. If I try a couple more time with no success, I would have been better off putting the capital in real estate.

    I think 97.5% of the people would be happy making $250,000 or more since everyone else makes less. Unless you are a really big spender or live in really expensive area of the country, I think $250K is more then ample.

    The wall street journal had article on page 1 and 2 a couple weeks ago about a successful business man and a lobbyist making over $250K and it was not enough to keep up with his spending so he embezzled money. When his embezzlement was discovered, he committed suicide. For some people, money is as addictive as heroin and you never have enough not matter how much you have.

  40. Jay Castillo

    Hi Brandon, I agree that investing solely on real estate to build wealth will be slow.

    However, I would have to disagree to your statement “No one talks about how darn slow investing in rental properties will build your wealth”. I believe Brandon Turner often mentions this. He takes time to explain that this is really a slow process.

    Anyway, my take on this is to have multiple streams of income from several businesses, most of which should be reinvested to a lot of rentals, and this builds a lot of wealth. Just my two cents.

  41. Hi Brandon, I’m looking for a business to start and work in construction. I really like what J. Scott has done in house flipping and he offers business plans to copy, but do you think this is a business one can scale then sell later? Will it offer enough profit as a business to reinvest?

  42. Dustin L.

    i just cannot imagine why anyone would only buy 1 house per year. My wife and I started our rental business 2 years ago with a $4500 tax return. We put that money down on a song family bank foreclosure. Since then I have invested $0 (zero) ( i.e. None) of our w2 income into real estate. Last year I bought 4 single family houses, a duplex, a 10 unit apartment building, a carwash, and a laundromat. This is March 1st and we have bought to rentals this year already, with an offer in on another 1. I turn 30 in a couple of months and I expect to quit my w2 job within the next 5 years under my current investment strategy. Do not get me wrong I have a great job where I work 4 days a week, but it doesn’t pay squat. I currently run all of the day to day of the rental business myself. I typically put in a half day Friday and Saturday. Cash flowing $4500 a month. Current loans total about $470k. Current portifolio apppraisal value $860k.

    It is all about Leverage.

    • Charlotte Bryan

      I have no doubt Brandon had the best of intentions when writing this article but I think the execution was poor…and this from a newbie that has a whopping one! property thus far.

      He says NO ONE tells us this is a slow path to wealth. No one if you exclude Bigger Pockets Podcasts, books and forums.

      He compares wealthy men who flip businesses to those who would go the route of saving up for one property…per year. Again, a casual stroll into the forums and the podcasts and the BP books and you can quickly run into people who buy 10-20 properties in less than 5 years. Why not use those people instead of comparing Bill Gates to grandma who wants a little extra for Christmas gifts?

      He speaks about mistakenly thinking he could quit his job quickly. I wonder where you can hear stories about people who bought properties and quit their jobs in less than 5 years? If only there were like a community of investors that could get together and share information. Wishful thinking I guess.

      And he sets up 10 years as an eternity. I am starting out seriously with R.E. at the old age of 37. If a W2 was in the rear view mirror by age 47, I’d still be the envy of many of my peers who are lawyers, doctors, financial analysts etc.

      Lastly, he says wealth is NOT going to happen with rentals. I am a Statistician so the word never (even if not said but implied) based on interviews with wealthy people (I know he says thousands) grates on my nerves in a special way. Why not say I have not seen it happen or it is highly unlikely? Has he taken the time to post a challenge asking for that ‘unicorn’? I understand he did not write the title so I am comfortable lobbying this criticism on that person as well.

      On a positive note, it has prompted great discussion so I guess worth the read.

      • Brandon Hall

        Hi Charlotte – I think you missed my point. I never said you can’t build wealth via investing in rentals, that’s absurd. You most certainly can. It’s just going to take a long time.

        Too many people promote investing in rentals as a quick way to build wealth and leave your job. Well, ten years is not quick at all. But that’s my point – few people actually tell you how long it’s going to take. People start investing with big dreams and expectations but investing is slow and methodical. Often times that gets lost in all the sales pitches, many of which happen right here on BP.

        I wrote the best I could without disclosing client information. I wish everyone could see what I see, your mindset would change.

  43. Andy Gross

    I think Brandon is spot on. If you get 8% cash on case return on your investments, you need $1.25million to make 100k per year. That’s just math.

    The big difference here is the distinction between pure investing and building a real estate business. If I buy a turn-key property, or spend $5k on a crowd-sourced RE project, I’m a pure investor. All I need is money and some time to do my due-diligence. You’re also going to make the least return on your money, because you have folks in the middle taking a cut, but, unless you have some sort of competitive advantage over them AND the time, this is your best option. If I have a family and a 70 hour/week job that pays well, I don’t have time to run a successful (profitable) real estate business as a side hustle.

    If I’m driving for dollars, wholesaling, rehabbing (with or without the use of a GC), and managing properties, I may be an investor, but I’m primarily the owner/operator of a real estate business. This, in the long run, can be very lucrative. I’d say even more lucrative than many W2 type jobs. It truly depends on what you’re doing.

    If I’m making $250k per year as a doctor, lawyer, sales person, whatever, I probably don’t have time to start a real estate business. In any event, my time is better spent lending money to those in the real estate business by either making hard money loans or taking equity positions in their property. In the end, that RE business guy/gal may make more money than you, both on the project and per annum, but your time is better spent doctoring/lawyering/selling stuff.

    I’ve made good money on my Apple and Under Armour stock. That doesn’t mean I’ll make any money in the short (or long) term building electronics or apparel on my own.

  44. Drew Palmer

    Brandon, great article. I tried to post yesterday but the page bonked. I don’t usually comment but felt compelled (based on my own experiences) to say the following. You mention “starting” a company as a better/quicker path to wealth. While I agree with your larger point, I disagree with the method you suggest. I would adjust that to say “owning” a company. Starting something from scratch, especially if its tech, can be a highly risky proposition. Better, I think, to buy an existing company that has already gotten to, say, 500K in sales. Find an industry you know something about and start looking on bizbuysell or other spots. You can buy companies for 2-3x cash flow and you can get financing. I also agree that doing real estate as a “business” with multiple jobs going, maintenance staff, etc. is also a very good plan. Ideally you do both in parallel.

    • Brandon Hall

      Great point! The only counter I’d have to that is if you are buying a company and leaving your W2 job to take ownership. I think there’s a lot to be said with starting a company from scratch – you learn a ton, hone business skills, and prove to yourself that you can create something. Yes it’s much harder, but you’re going to make mistakes and I’d rather learn in a relatively safe environment (super small business) than buying a $500k business and make a mistake that I can’t recover from.

      But I think you should only start from scratch once. Take your punches, learn from them, and just start buying everyone up 🙂

  45. Dan D.

    I liked the article. Opens your mind, but it appears to reflect some selection bias.

    People meeting with Brandon are generally going to be successful people. However his firm marketed, they’re sample is already likely successful people because they are seeking a CPA, and they financial matters might also be complicated, where they need a CPA.
    At this point, one could assume they have more than one venture going on because a single venture may or may not require a CPA. The likelihood of seeking out a CPA increases as you have greater wealth or more complex financials.

    Businesses that fail probably don’t spend as much time or money with CPA firms. (an assumption on my part).

    So yes, starting and selling a business is a great way to make money, but the article doesn’t reflect any stats of how often a business fails. (which is a lot).

    If I were to invest $100,000 via two different people. One who had a business idea, and another who was going to invest into a rental property, in 10 years, my bet is that I would have more wealth via the real estate investor than the entrepreneur with a business idea.

    If you want to maximize the possibility of making massive millions, the business idea will be your better shot.

    But to take it a step further, for less work and even greater riches, (and less time spent and quicker turnaround) “investing” in Powerball tickets will get you there faster. CPA’s who have met with Powerball investors have even greater wealth than business owners or real estate investors.

    • Brandon Hall

      Hi Dan – 95% of my clients come from BP in all shapes and sizes. I’m only as biased as the readers and contributors to this website.

      As I said in another comment – those who are reading and participating in BP are not average. I’d argue they have above average capabilities to start and scale a business. I doubt anyone would refute that.

      Unfortunately I can list stats/facts due to client confidentiality. I wish I could as there would be absolutely no argument to what I’m saying.

      • Dan D.

        How many of them build a business after they start in real estate. For some the path to owning their own business is to generate passive cash flow through real estate first to free up their time to work on a business.

        Possibly accurate or not?

        I think the error in you article was that starting a business can be an excellent way to make money, but also a far greater way to lose money than buying real estate which to many seems more stable.

  46. David Hood

    I’m sorry, but getting wealthy building a multi million dollar business is a very very long shot proposition.

    In my experience, people building those type of businesses had a large amount of luck. Either they worked a company and they learned a unique set of knowledge… or they had a friend, parent, or relative that could guide them or provide startup capital…or they were simply in the right place at the right time. In most of the success stories, if you peel back the layers, you’ll find some unique circumstances that are not repeatable. Although most “company builders” tend to omit those historical details.

    Nice opinion article but it is simply not based on the real world.

    • Brandon Hall

      Sorry David, I strongly oppose your view. The majority of my clients have come from BP. The majority of my clients are running businesses, some RE related some not, and they are realizing great success.

      Sure, the average person will have a heck of a time building a business to $1MM or even making it profitable. But my clients are not average and since almost all of my clients have come from BP, I’d argue that the readers of this site are also not average.

      It’s easier to start a business today than it has ever been in the past. You’d be surprised how many millionaires are likely in your neughborhood.

      • David Hood

        I guess I’m getting lost here. Your article seemed to suggest that it was reasonable to build a multi million dollar business, now you seem to suggest that it’s not really that common and not feasible for the average person. You seem to be building a case against your article.

        • Brandon Hall

          What? That doesn’t even make sense. Again, the majority of my clients are from BP. People who are on BP are above average in terms of wealth build and business building. I wrote this article for BP readers. Thus, individuals reading this article are above average and can likely build alight profitable business.

          If you don’t feel like you can build a business, that’s fine, but tons of people on BP have built successful businesses. It’s hard, but also easier than you may think.

  47. Wade Sikkink

    Spot on Brandon.

    The underlying message is one I’ve preached myself. Wealth is created by ownership. Ownership in companies, real estate, etc. Getting truly wealthy working for someone else happens, just like getting wealthy from winning the lottery happens, but it’s very rare.

    The other key thing that you hit on is real estate is a get rich slowly game. Leverage and time work in your favor as a real estate investor, but you have to have patience. The good news is that if you have the time, one day you’ll wake up and your tenants will have created a lot of equity for you.

    Keep it up Brandon. Glad to hear the new biz is still going well.

  48. Great article, Brandon. Rental properties may not make you rich quickly, but they are a low risk way to slowly replace your W2 income. While it’s true that starting businesses can be very lucrative, it’s also much riskier in general, and much more time consuming. I have as many friends in business who are slaving away for a half way decent salary as friends who are making a million a year with their slightly larger businesses. The former risk their time, while the latter risk much more capital.

    I guess it depends on how risk tolerant you are. I like my W2 job and my cash flow that has slowly replaced my W2 income. Slow and steady, minimum risk. My wife quit her job last year, for her 41st birthday, and I can leave my W2 job at anytime too. We’re not rich, but it’s more than we need to live a middle class lifestyle in NYC 🙂

    • Brandon Hall

      Thanks for sharing! Running a business can be risky until stabilized, but I think it’s less risky than working a job. Sure, you put it tons of hours, but it’s generally because the business owner loves it (if they don’t, well then I agree with you).

      But think of it this way – a service business will have 100s of clients. If one of the clients leaves, the business owner still has others to serve, thus he/she has only lost a small percentage of their income.

      On the other hand, your employer could leave you at any time. You’d then be scrambling as 100%, or a large percentage, of your income has ceased.

      Just my thoughts.

  49. Matthew Terui

    Thank you Brandon! This confirms that “missing piece” that I’ve been trying to figure out. As a newer real estate investor I keep listening to a lot of turn-key podcasts. Love their content. But they always gloss over the fact that you generally need that 20% to get started. You still need money to make money. I was hoping that I wasn’t right about that. But your article confirms I was. Thank you for sharing!

  50. Jerry Kisasonak

    Not long ago someone famous around BP posted a blog about “12 Reasons Rentals are the best investment.” Shortly afterwards a blog titled “Investing in Rentals Won’t Build Massive Wealth.” These conflicting views are probably one of the biggest disservices to a new investor who comes to BP looking for advice. From what I understand, the genesis of BP was based on the idea of giving investors a central hub to learn how to get started and navigate through the challenges and opportunities in real estate investing. But I think there’s certainly a point of having too much information – especially when the proposed views/blogs oppose other views/blogs – and the net result is that people become confused and do nothing. Then it’s counterproductive.

    Back to this blog: Stating “This Will (build massive wealth)” is a bit of a stretch. Many of us have seen people dump their entire life savings into businesses that went belly up. Sometimes people can and do recover, other times not. The statistics are that 90% of startups fail. So to say that this is “the way” is a bit too anti-statistical in my opinion. Although your personal experience may be based on your dealings with successful business owners, the facts about those who lost money and went out of business cannot be ignored. Despite their stories being seldom told, the risks are very real.

    • Brandon Hall

      Again, I have no control over the title.

      Before I ever buy a product, or start done a path, I look for reviews who can offer an unbiased opinion. That’s what this article is. For a newbie, it’s worth it’s weight in gold. I’m saying that rentals can generate wealth, but it’s going to take a long time. There’s nothing wrong with that of course, unless you’re trying to be financially free within the next decade.

      This article was intended to be a gut check for anyone that has drank too much Koolaide. I think it worked.

      Thanks for reading.

      • Rick T.

        As an extreme newbie (about 3 weeks into consuming all that I can about REI through bigger pockets podcast, forums, blogs, etc.) I would definitely say this article (and all the feedback/comments) is worth it’s weight in gold .

        It has not turned me off in any way from continuing to look into different avenues of real estate investment and also helped give me more perspective on expectations and ways to achieve my goals. Thanks for the article!

  51. Juan C Osorio

    Hi Brandon,
    Thank you for taking the time to write this article. I think you make a good point. I believe a lot of the members are missing the point. It is true that REI builds wealth but also,on the average, it takes a long time. On the other hand, as you have mentioned, the more stream of incomes you have, the faster you will built wealth. Nice work!

    JC

  52. Mathew Giovanello

    As someone that has started many businesses. Buying real estate smartly over time is virtually a sure bet on significant net worth.
    Building a successful business in itself is a very difficult thing to do. Building one that is around in 5-10 years that you can sell is a much slimmer reality. Look up the the odds of starting a successfull business and the odds of being around in 10 years. You need to dedicate 110% of your time to build a successfully business and you can lose everything if your all in. That’s been my reality. What I do agree with is a high paying commission based sales job. Training yourself in sales and working hard for a great position is much more doable and invaluable.
    There are many sales positions that you would make more yearly than a small business owner.
    Without any of the liability and headaches of being that business owner.

  53. Michael Baum

    Although I agree that hard work to build a business is a great way to make wealth, it is surely not a sure fire thing. I started an IT business back in 2001. We were very successful. We focused on small/medium businesses and offering contract services to business parks. Spreading the cost of professional IT services for everyone in a complex we a great selling point and it worked great…for at time…

    We are on a steady 25% year over year growth path, employing great IT professionals with a universally positive reaction to our services. Life was good. Then the big boy’s swooped in.

    It was unbelievable how fast we lost market share. They were able to offer discounts on hardware that we couldn’t touch (free in some cases) with a paid upgrade cycle plus they worked with the real estate companies that owned the buildings to contract direct for services to each of their buildings for a discount. We just could not compete with that.

    Eventually we lost the buildings and office parks and we just couldn’t sustain on the individual businesses we supported and were forced to close the doors.

    If I had put all my time, effort and money into real estate I would be miles ahead of where I was.

    Everything worked out OK in the end, but it was a tough time. I had not considered real estate investing at all back at that time. I was focused on what I knew best and tried to fill a need and it was very successful for a time. I do think there is a certain amount of luck involved with any business. That is tempered by planning, experience, knowledge etc etc, but it can never be removed entirely.

    Now our family is shrinking (one kid left at home) and my wife and I are looking at doing some real estate stuff, specifically focusing on short term vacation rentals and are still looking for our first one. I don’t expect to get rich off of it, but I am hoping we can add to our retirement, provide some places our family can use while they are not being rented and have some fun!

    Great article overall IMHO. We all need a dash of reality from time to time and numbers rarely lie… 🙂

    • Brandon Hall

      Excellent contribution. This is a real world example of a refute against my article which I truly appreciate, unlike the majority of comments who are flaming me with nothing to back it up.

      Thanks for charging your story!

  54. Brandon, you are wrong. Majority of startup fails. Want the quickest way to wealth? Buy a winning lottery ticket. Brandon, please stop writing this kind of articles. They are pointless and useless. Want real advices? Learn from the millionaires and billionaires like Trump, Kiyosaki, and Buffett.

    • Michael Williams

      Philip I’m confused….Didn’t Trump inherit his money and used money from those businesses to expand an empire his Father Fred Trump left him? Didn’t Robert Kyosaki write books then bought real estate and started a company that creates income that he still uses to buy real estate, and doesn’t Warren Buffet have businesses and buy real estate? Isn’t this article about how people are using businesses to build a real estate portfolio faster? I’m confused at your statements, and especially while using names of real estate people that, to me, support the point he is making.

  55. Dan D.

    Basically this is a invest in real estate vs invest in a new business argument at it’s core.

    The issue is many people are stuck in the rat race, and it’s easier to try to get out of it through real estate working on it “part time” off hours, then starting a business where you might need to respond to possible clients during normal work hours which creates a bigger conflict of time management.

    So yes, if you don’t have limited time, and you can absorb the risk, starting a company can be a great way to go.
    If you want to only work on things on weekends and through a couple timely based phone calls to contractors and via the use of a lockbox at your property, real estate might be an option.

  56. Lee Lockhart

    I think this is a great article. Diversify your streams of income, whether real estate, business, stocks, etc.. The more units one can aquire that produce income, then the faster one can arrive at financial independence and become wealthy. As the article mentions, the more units one have, then the more your portfolio starts to become a business in and of itself.

    The mention of the amount of capital to produce $10,000 monthly is spot on.

    Stay great and learn from everyone!

  57. All very interesting comments to a very interesting post. To build wealth one must obtain assets that hold value and appreciate over time. Also, in either scenario, creating efficient operating systems to free up time and cut costs will help in managing the operation. One should strive to create income that isn’t dependent on your participation on a daily basis. Whether you work for yourself or someone else, if you stop your income stops. There were references to Trump, Kyosaki, and Buffet. These people own assets that stand on there own, generating income on a daily basis with systems in place(managerial and organizational). A check hits the mail box on a regular basis no matter what else is going on in their lives. That is the Freedom we all desire.

  58. Clement Ma

    Do you know the rate for the BEST out of the BEST stock market winners are only getting <20% return on cash yearly, if you are able to get the 15% return on cash, please open up a company, I'll bring you lots of cash investor from china

  59. David Zheng

    hmm, maybe I’m just not the norm….

    But since Dec 2015, I’ve put in about 160k of my own money and I’m cashflowing 11.5k/months after paying investors, PITI, and expenses. pre tax but still a good chunk of money

    • Jesse Holshouser

      You’ve put in 160k of your own money, but I’m willing to bet your total equity position is much higher. I think that’s his point. It takes roughly 800k in equity to see 10k a month. Some people are able to create that equity by adding value to properties, and can do that fairly quickly, but that’s not really “investing”, that’s a business. He’s right, but at the same time, I don’t personally know a single real estate investor who doesn’t create value with every deal.

  60. Joshua Myers

    First, thanks for the great article. It’s inspired a lot of thought in the readers, me included.
    It occurs to me that there is a survivorship bias at play in your article. Many businesses fail or are mediocre. The owners of those businesses will not likely be using your services and will be underrepresented in your analysis. If you looked at averages (as opposed to only the super successful) would your conclusions be the same? Rentals are slow and tedious, but how safe are they compared to businesses? I’m not educated enough to do the math, but if you include the likelihood of failure/mediocrity in business vs the likelihood of failure/mediocrity in a w2/buy and hold strategy, who would have the best odds of coming out ahead? These strategies aren’t mutually exclusive, but our time to pursue one or the other is limited.
    Thanks again Brandon!

  61. Ray Dipasupil

    Huge fan of your work, Brandon. Though building a business outside of real estate, I found, can be more challenging. As a software engineer who co-founded 2 tech companies, the path to success isn’t always clear cut relative to real estate. RE is a slow (somewhat) predictable market, while most businesses aren’t unless you’ve already immersed yourself prior to starting your own venture.

  62. Michael Pease

    I 100% agree with this article. Unless you look at real estate as a business it’s not a way to generate massive amounts of wealth. As a CPA in the midwest with a good combination of investing background and real estate taxation Brandon is right on here. I have several clients who have generated great equity and will EVENTUALLY generate great cashflow but this is all they do and they usually use private money and really have to grind to get to a point where they are making money, much like building a business is. I made that realization myself this year and have started my own accounting firm and property management business in the same space and will most likely add on maintenance, cleaning, and several other aspects of the business to generate more income to use to invest in real estate for the long game. Great article, glad to see there’s another CPA out there who thinks about real estate as I do!

  63. AF Rodgers

    Great article! One thing I would add is the ability to use real estate to be able to own a business. My couple of rental properties raised my net worth enough for me to bring a very successful franchise to my town. We open in two weeks! I wouldn’t have been able to own my own franchise without my investments in real estate.

  64. Eric S.

    I know my results are not typical at all as I used VA loan and really good local bank and relationship. I started summer 2012 with my first unit, purchased a 2 unit with VA loan 270k, no money out of pocket. 2 Years later bought duplex total acquisition cost 24k sold it for 60k one year later. 1031 that bought duplex for 275k put 15% down 42k. Bank I used immediately let me cash out refinance it since it Was appraised for 315k at 85% LTV. (Local Bank btw). Bought a duplex down the street for 300k with cash out refinance money had to put another 15% down 45k. Refinanced my original 2 unit was appraised for 450k less than 4 years later able, to get 104K cash-out. Bank let me do 80% LTV. This allowed me to use my VA loan again on three unit, had to bring 32k since it was a VA jumbo loan. 6 months later with the money from cash out refinance bought small apt building had put 20% down (140k) on 595k purchase price and 105k used for repairs and renovations that was placed in escrow account. Total gross per month right now is $24,400 for all units. Fixed costs PIIT are $14,800. Tenants cover all utilities and they perform lawncare. I manage them myself expenses have been about 12% of gross per year. Overall I believe I have invested 247k approx to attain this. Between selling one property and refinance two I was able to attain approx 201k. Approx 47k additional I had to contribute to be where I am. I am about 5 years in the game. All my properties are in A or B neighborhoods campus or near downtown. My goal was to make 100k a year after PIIT by time I was 35. I am 29 now and still rent with a roommate, and drive a nice car. I have an okay 9-5 state job with amazing benefits (I contribute 10% they match 14%). I am trying now to prepare and protect my investments of any bubbles that may come up. Some people say I overlevereged guess time will tell.

  65. pearce g.

    Your advice is too late for me, but I take a different view with my kids. I’d like them to have a regular salaried job for a while. Ten years is nothing when you’re just out of college. Learn something about how businesses operate, gross vs. net income, managing their own finances, etc. At the same time, start building a portfolio of buy/hold properties, so before they reach 40, they might have the financial freedom and business experience to start a company of their own.

  66. Brian Cumberledge

    I don’t even like to read these articles anymore. They are all the same. You can’t get rich in rentals. Rich gets defines as maybe $250k a year? Listen. Nobody needs that money. If you do, you are living for the wrong purpose. Oh yes it’s for my future generations. They can work. Then you say it may outlast you. Wow I sure hope so. Otherwise again you have gone off the deep end of life. Stop scaring people. You can have a great life on much less passivde income. You don’t even need $10k a month. If you need $20k a month, you won’t ever be happy. If you walk around wondering who is a millionaire, I suggest a hobby or two. Until then, buy a couple rentals and enjoy life.

  67. Zac Albers

    Great article! I’ve long been a proponent of a “side-hustle” outside of your main 8-5 job. I currently work as an executive in a marketing/sales company. I’ve got a pretty good salary with a high commission potential. I made a lot of mistakes in my 20’s and generated a lot of debt. I became a Real Estate agent on the side and 2 years later started my own Brokerage. I specialize in helping investors find, analyze, and purchase REIs. My business side business should outpace my primary income probably next year. Everything I’m making in it goes to paying off all non-income generating debt. Once that happens… it’s all going into REI. That way I’m teaching myself how to find the best investments for my clients now, so that I can replicate it in the future.

  68. brian ploszay

    I loved this article. Very thoughtful and debatable. Here’s my experience: Real estate is expensive and you simply cannot buy enough rentals through your savings to replicate enough income from your regular job.

    I calculated I had to accumulate 60 rentals to equate to replacing my income from a job. Raising money from an equity partner was the way to be able to grow the number of units I own. Plus making money from ancillary real estate businesses such as brokerage.

    I always said that landlording is a slow bank account. But most landlords do very well in the long run. You can refinance your equity out. Your property pays itself down and it appreciates over time.

    I do apartments. It is time consuming, so you lose the opportunity cost of doing something else to make money. My conclusion: You have to scale this to a business. You will not create significant wealth just buying a few properties, unless you are lucky.

    What is wealthy? Probably owning a few hundred units and the author is right: You have a business.

  69. Susan Maneck

    I’ve already pretty much replaced the income from my job with just eight rentals. I got into real estate as a result of the recession precisely because I realized I need multiple income streams in order to feel secure in retirement. It worked. I’m 61 years of age now and working is now optional. Feels good. Not going to be accumulating massive wealth at my age. That sounds like too much work.

  70. Chris Ellis

    I have 1 left over from back 10 – 12 years ago when BRRRR was the way to go and I see a LOT of people touting it and coming from someone who suffered through the housing bubble burst…consider each one of those houses a domino waiting to fall unless you have the reserve cash to carry ALL of them for 6 months empty. I had 13 houses either under mortgage, free & clear or lease option, and 2 on wraps. The collapse took a lot of people out of the game.

    Now, the way I’m doing it in Tulsa, I’m picking up foreclosures from the people that bought with no proof of income needed, older people, whoever. For example, closing next Thursday for 40,494. Needs 14K fixup…FMV 93. If I sold for that I’d clear 33, but I’ll sell lower for faster and help them not have PMI…so I’ll sell for about 87 and clear about 22. Me and my 1 man crew can do the work in about 3 weeks. (I grew up doing this kind of work). Already have another in the pipe – same price – same issues, 4 blocks away. We’ll do the same thing. Sell that one.

    Now we have 44K. Take that money, fix it (rental quality – sturdy, but not quite as nice) and rentals in that area go for 950 – 1100 depending on size.

    Looking to get 3 rentals purchased this year, using the same 55k – 60k. Though I do have a neighbor going bankrupt who owes 63K and his house needs about 15, but it’s worth 125. I’ll skip a smaller one to buy that one.

    So….my current makes me 750, these next 3, lets just say 850 each (low, but okay) that’s 3300 *12 = 39600 – tax + insurace (9K) = Let’s just say 30 Grand a year on year one. The absolute beauty is year 2, you can double your efforts because you can run 1 crew while your partner runs the other crew. He takes a bigger cut, but you do twice as many house…year 3…you have 2 crews and you do nothing but look for other opportunities while you’ve automated your simple system to run without you.

    So….You can get into making really good money buy buying SFH….and after I have a nice bundle I’ll look at doing a 1031 exchange trading several nice houses for a need a little work class B apartment that I can raise the rent on.

    Also, buying rentals in places like Florida, Colorado, etc, with mortgages…you let the rental pay the mortgage and you can fly there to do maintenance and the trip, car, maintenance, and everything, is a right off. I plan on buying a B&B in Ireland some day.

  71. Eric Hamilton

    Good article brandon I literally am thinking about this now after getting my 1st rental I’m excited but I realize i need a business to build up large streams of income to buy real estate. I always hear people say cash is king in real estate but have never figured out until now how some do it so quickly even in rich dad poor dad he had his surfer wallet business lol!

  72. kenyon meadows

    Bp redponse

    I appreciate this thought-provoking article.

    Whether or not it was intentional it seems that a lot of the push back that the author has received is related to the perceived ease with which he suggests one can build a scalable sellable business or alternatively find a job with the rather high income of $500,000 per year.

    I would remind all of the readers that of the approximately 28 million businesses in the United States approximately 98% of them have one employee. Likewise in order to make it into the much talked about 1% it takes approximately $350,000 of annual income.

    In either case it is pretty rarefied air and is a testament to the high caliber of clients Mr. Hall seems to be routinely around. See you at the top!

  73. Alex Ell

    Brandon, I agree with the overall theme of your article. Reminded me of “The Millionaire Fastlane,” by MJ Demarco. As a business owner, I’d also like to add that you have a few more hoops to jump through when applying for a loan compared to a W-2 earner. So, it’s very important to keep on top of your books or hire a bookkeeper to show financials when necessary.

  74. Jared Adair

    This article is short sighted in it’s evaluation of real estate vs other business’ for building wealth. It compares one of the 4 ways you create wealth in real estate (rental income shown on a P&L) then compares it to the value that a CPA firm creates on both it’s P&L and Balance Sheet. For a fair comparison you would have to take the equity buildup, discount at purchase, and appreciation, none of which are taxed immediately and are precisely why Real Estate is one of the best ways to build wealth.

    Example if an $800,000 investment represents 20% of the purchase price then that equals $4,000,000 in real estate at the time of purchase. If he purchased at a 10% discount then there is another $400,000 in wealth that would show up on a balance sheet. Assuming the $4,000,000 in real estate appreciated at 3% a year over a 10 year period of time equals $1,397,414. He doesn’t give interest rate, time of acquisition, or terms but using today’s interest rates, a 30 year loan, and half of the overall borrowed amount equals $319,000 in equity buildup. Finally if we say that the rental income averaged half of the $120,000 stated at the end of the term we add in another $600,000. ($60,000 avg annual rents x 10 years.)

    Discount $400,000
    Appreciation $1,397,414
    Equity Buildup $319,000
    Rental Income $600,000
    Total $2,716,414

    On top of that if the investor used the rental income from the new investments his total out of pocket over a ten year period of time is only $200,000. ($800,000 – $600,000) I think turning $200,000 out of pocket into $2,716,414 over 10 years is doing a pretty good job of creating wealth.

    By the way if you are lucky to have the degree and marketing skills to build a CPA practice over ten years that generates $240,000 in gross revenue and $120,000 in take home pay you could sell that practice for $144,000. Congratulations.

    It seems the article should be titled “Real Estate won’t build massive cash flow quick” which I would agree with. As for building wealth building it is hard to beat for the average person.

  75. John Murray

    Great article! I invested $500K and purchased 7 SFH and turning $65K positive on rent profits as well as about $200K on appreciation. All are BRRR and in metro Portland Oregon. I’m a journey tradesman and do all of my own renovations. My capitol was raised by selling one home and cashing in an investment that did well in the recovery of of the subprime crash. Not all can achieve this result because they lack the practical building skills. Real estate investment has become about 25% of my portfolio and is returning about 75% of my net growth. Life is good!

  76. Alden Simpson

    What a great article, definitely was a little surprises to hear a different route for wealth, especially being in a predominately real estate investing platform. I loved that you took a different perspective. Starting a business is definitely a larger leap than investing in rentals, but i can see how it is more satisfying. Especially succeeding in something that you create yourself. Great advice.

  77. NNN…what’s that you say? Well if the ultimate goal of investing in real estate is increasing the “time value” of money then a triple-net-lease is a far superior investment by exponential degrees of magnitude. Time + money=wealth or at least the opportunity to achieve wealth while you’re still young enough to enjoy it without the ravages of old age. The business aspect of NNN is not for the skittish but it’s also not rocket science. For all those who are hard core apartment building devotees then I wish you all the best & sometimes “hard work does pay off” but my point about old age should really stick in your craw. My advice is to study the NNN market & after all the analysis make a judgement call of your own. I’ll just leave everyone with this little jem(all real estate investment should entail the analysis of the future value of the land sitting beneath the real property structure). Remember Manhatten was once just an island….now the land the island sits on is a global brand!

    • Dalton Osmanski on

      This is a great post and is an eye opener for anyone who thinks that by being a sole proprietor they can build great wealth without building a business.

  78. Severin Sadjina

    Two quick thoughts:

    1.) Financial independence in 10 years is not slow. Definitely not for the average person. Can it be done faster? Sure! But counting on it may be a mistake.
    2.) I am totally missing the compounding effect here. First property the first year, the second property in the second year, and so on, one each year. Yet, every property increases your income (assuming living expenses stay constant, or at least increase slower). Exponential growth is at the heart of why rental are pretty cool.

  79. Mike Moose

    I liked the article. I’ve intuitively thought this for a while but haven’t been able to express it like you have. I’m not very creative and I just started figuring out rentals. 🙂 Could someone provide a couple of examples that fit this description quoted from the article?

    “You can start the majority of these businesses with a minimal investment, and you can even run them on the side of your day job! “

  80. John Murray

    Your numbers are correct I have $650K in my BRRRR game. The return with rent profit is about $ $5000 per month the $3M leverage (12%) is about $320K. That’s some crazy appreciation. I will realize about $150K in October and purchase 2 more SFH rentals. Wait a minute, that’s a return of almost $400K in one year. The moral of the story, I was in the right place at the right time. You are correct you need to have some large cash working for you’ That’s when magic happens.

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