Making one million dollars a year is not as impressive as it was in the past thanks to inflation. However, it is still a goal for many people and many people consider millionaires to be “rich”. To qualify as a millionaire you simply have to have one million dollars in net worth, which is not as rare as it used to be. There are many studies on wealth but from what I could research, about 8 percent of United States households are considered millionaires, which is up from 6 percent a few years ago. It is interesting to see to more and more people becoming millionaires thanks to inflation and also to a strong economy. The question I am curious about is how do people become millionaires? Is it through inheritance, investment, saving, business, real estate or a combination of many sources?
How did I become a millionaire with real estate?
I am a millionaire and I made my money through real estate as a real estate agent, by flipping houses, and by owning rental properties. It is interesting to note that I make a lot of income selling houses as a real estate agent and flipping houses, but owning rental properties has increased my net worth the most. It is great to make a lot of money, but you need to make sure you have something to show for it by saving and investing. Real estate has been an awesome vehicle for me to earn income and invest that income.
I talk more about how real estate made a millionaire later in the article.
How do most people become millionaires?
I have been researching how most people became millionaires for a very long time. I cannot find a survey or survey results that give a straight answer! I can find how most billionaires made their money and the statistics are listed below for the world.
Global Top 10 Industries Producing Forbes Billionaires
- Investments: 371
Fashion and Retail: 273
Health Care: 221
Food and beverage: 219
Real Estate: 215
Media and Entertainment: 95
While it is interesting to see how most people became billionaires, the average person does not have a very good chance of becoming a billionaire or may not even want to be a billionaire. I have found a couple of articles that claim 80 percent of millionaires made their money with real estate. However, I can’t find sources for the studies or where this information came from. However, it does not surprise me that most people become millionaires because of real estate.
Why does real estate produce so many millionaires?
Many people will argue that stocks or mutual funds are a much better investment than real estate because the average gain of the stock market is higher than the average gain of housing prices over the last 100 years. However, when you invest in real estate or even buy a house to live in, the wealth you are gaining is not as simple as the increase in the value of the home.
- Leverage: Most people get a loan when they buy a house. Getting a loan increases your returns if housing prices increase. If you buy a house for $300,000 and it increases in value to $360,000, that is a 20 percent increase in value. But if you only put $10,000 down on the property, then you actually made a 600 percent increase on your investment.
- Buy below market: When I buy houses I do not pay retail value, I want a great deal and you can do that with real estate. Many houses can be bought for less than they are worth if the seller is motivated, the home needs repairs, or for many other reasons. On my rental properties and fix and flips I usually pay at least 20 percent below market value. As soon I buy the house I increase my net worth by the discount I got on the property.
- Cash flow: Owning rental properties is not all about the value of the home increasing. In fact, I pay more attention to the cash flow my properties make me, not appreciation. My first rental properties made me about $400 a month. That is not a ton of money, but when you buy multiple properties that money begins to add up.
- Equity pay down: When you use leverage to buy rental properties you are paying down the balance of the loan every month. Depending on the type of loan you get, you could pay off the house in 30 years, 15 years or sooner if you want to pay off the loan early.
- Tax advantages: Real estate has awesome tax advantages for your personal house and for investment properties. In some cases, you can make money on cash flow every month and pay no taxes thanks to depreciation. You can also use a 1031 exchange to defer taxes on sales.
Buying one rental property and holding it for 30 years may not make you a millionaire. Actually, it most likely would make you a millionaire thanks to inflation, but being a millionaire in 30 years will not be the same as being a millionaire today. If you can buy multiple properties over time that are great deals you can become a millionaire rather quickly. You don’t even have to have a lot of money to start with.
What other ways can real estate make you a millionaire?
We just discussed how rental properties can make you a millionaire, but there are many other ways to make a lot of money with real estate. I wrote a couple of articles about how to make millions with real estate below.
- How to make one million dollars a year as a real estate agent
- How to make one million dollars a year flipping houses
Besides flipping and being a real estate agent there are more ways to use real estate to make a lot of money.
- Development: Probably the way to make the most money the fastest in real estate is by developing land into residential or commercial projects. This technique is also extremely risky and takes a lot of money and experience. I know a couple of real estate developers in my area who are worth close to or over 100 million and many of the billionaires who used real estate are developers.
- Building homes: Building goes hand in hand with developing and is another way to make a lot of money, but can be very risky if the markets turn.
- Owning raw land: Raw land can be developed, but it also can make you rich without development. Many farmers have become millionaires because they owned large plots of land close to developing areas. The closer the towns get to their land the more it is worth. Mineral rights can also be extremely valuable if oil, natural gas, or other resources are found on your land.
What other factors contribute to becoming a millionaire?
If you want to be rich, you can’t go out and buy a few houses and assume they will make you rich. You have to educate yourself, made a plan, and have the right attitude. Here are some highlights from a survey that defines rich people as those with an annual income of $160,000 or more and a liquid net worth of $3.2 million or more, and poor people as those with an annual income of $35,000 or less and a liquid net worth of $5,000 or less.
1. “Daily habits are critical to financial success in life.”
Rich people who agree: 52%
Poor people who agree: 3%
2. “The American dream is no longer possible.”
Rich people who agree: 2%
Poor people who agree: 87%
3. “Relationships are critical to financial success.”
Rich people who agree: 88%
Poor people who agree: 17%
4. “I love meeting new people.”
Rich people who agree: 68%
Poor people who agree: 11%
5. “Saving money is critical to financial success.”
Rich people who agree: 88%
Poor people who agree: 52%
6. “I believe in fate.”
Rich people who agree: 10%
Poor people who agree: 90%
7. “Creativity is critical to financial success.”
Rich people who agree: 75%
Poor people who agree: 11%
8. “I like (or liked) what I do for a living.”
Rich people who agree: 85%
Poor people who agree: 2%
9.”Good health is critical to financial success.”
Rich people who agree: 85%
Poor people who agree: 13%
10. “I’ve taken a risk in search of wealth.”
Rich people who agree: 63%
Poor people who agree: 6%
You don’t have to use real estate to become a millionaire, but you do have to have the right outlook and attitude. These results show some very consistent and clear data regarding why rich people make more money. They are willing to take chances, they are willing to get out of their comfort zone by meeting new people, they love what they do for a living, they save their money and they believe that their actions are what will make them successful.
Many people feel the wealthy had an unfair advantage growing up and that is why they became successful. Statistics show that 80 percent or more of the wealthy were self-made. Studies also show that people who are first-generation Americans are more likely to become millionaires than those that have lived in the country for multiple generations. Theories suggest people who live here for multiple generations gain habits of spending too much money, which makes it hard to ever become rich no matter how much money you make. People who come from other countries also want to take full advantage of the opportunities the US provides compared to where they came from.
If you are looking for help managing your money, investing it, saving it, making more of it, or even how to start a career, check out this program I started to help people learn about money!
What steps can you take right now to become a millionaire?
You don’t have to use real estate to become rich, but I feel it is one of the easier ways to make a lot of money. Here are some other tips for other industries.
- Do something that you like doing. If you hate your job and can’t wait until you can go home every day, it is very unlikely you will give the extra effort it takes to get ahead.
- Save Money: Yes I bought a Lamborghini, but I saved money for many years before buying it. I also bought the car partially as an investment and it has increased in value this last year.
- Make goals and plan your life: Most people drift through life hoping success will find them somehow. It doesn’t work that way, you have to find success and make it happen. Start by writing out how you want your life to be in the future and then make goals and plans that will help you make it a reality.
- Start your own businesses: 75 percent of millionaires are self-employed even though only 20 percent of the workforce is self-employed.
- Don’t be afraid to learn from those before you: Whatever you do, there has been someone else who has tried it before. Most likely there are people who have written about it or have created products to help those who want to get started. Don’t try to do everything on your own, because it will take longer and your chances of success will be less.
- Associate with people who believe in you: If you are constantly around negative people who tell you that you can’t succeed you probably won’t succeed. Choose friends and associates wisely who are supportive and encouraging.
Becoming rich is not easy. Many people who inherit wealth or have money come easily to them lose it. If you want to get ahead of the game and live an awesome life you have to do what most people aren’t willing to do. Otherwise, we would all be rich! Whether you choose real estate or another avenue to make your riches, make sure you choose the path and you do whatever falls in your lap because it is the easiest route. Most people will not follow through with their plans or intentions when things get tough, don’t be most people.