How to Build Wealth through Real Estate Investments

Investing in real estate has a number of advantages for those who are dedicated to growing their wealth. The stability of a given commercial real estate investment is less subject to stock market volatility and inflationary pressures. Many forms of real estate investment generate consistent cash flow through regular distributions, and these assets can appreciate during the investment period, increasing their value on top of the money that they generate. Many real estate investors also enjoy specific tax benefits unique to certain forms of real estate investment.

As alluded to above, commercial real estate investment is not one-size-fits all, and it is worth taking some time to examine the methodology that best fits your goals and resources. A comprehensive outline of every single strategy would be relatively lengthy and complicated, so below are some of the common options and those most relevant to our investment thesis at Gray Capital.

What Are Your Investment Goals?

Choosing your real estate investment strategy can depend on how active you intend to be in the investment, how much risk you are comfortable with, and other external and internal factors. If one of these factors change, whether it’s due to shifting investment preferences or shifting economic conditions, then your answer to the question of how to grow wealth through investing in real estate would be different. No matter what the other factors are, you will need to figure out what your goals are. What are you looking to achieve through investing in real estate? What is your timeline, and what level of risk are you willing to accept? Being able to articulate your investment goals will help you take productive action without wasted effort.

It’s worth distinguishing here between building, growing, and preserving wealth. Risk is a factor here, but so is the level of activity and effort you are able to commit. Building wealth, in this context, refers to those strategies that will maximize your returns in the shortest period of time. For a wealth-building strategy, risk is less of a determining factor than time. To pursue a true wealth-building strategy, you cannot think of your investment as something that happens on its own. It requires constant attention, decision-making, and on-the-ground effort to successfully execute, and we will outline several options in the real estate industry that reward this level of dedication.

Preserving wealth is usually a more passive endeavor that requires far less time from an investor, and while this strategy may not lead to the rapid returns of a wealth-building approach, preservation is more about stability, predictability, and reducing risk. Typically, individuals and institutions with a higher net worth will, at least in part, employ a wealth preservation strategy. Growing wealth means taking on slightly more risk, taking some additional time to facilitate the performance of your investment, and enjoying higher returns than an investor with preservation as the goal.

Resources: Time and Money

One of the strongest determining factors of a real estate investment strategy, especially if you are starting out, is the amount of resources that are available to you. In addition to the cash you have on hand, you may have other resources, which can be practical skills or a network of investors, that can help you get involved in commercial real estate investment. Read more here on how you can get involved with real estate investment with different levels of resources.

For those who are not accredited investors or those who may not have all the resources in place to make large investments at one time, there are opportunities to participate in the commercial real estate market through investment in a Real Estate Investment Trust (REIT). You can buy a share of a multifamily REIT for as low as $9.25, which can allow you to participate in the commercial real estate market without a significant barrier to entry. But you can’t build wealth with a nine-dollar REIT, and there are far more efficient ways to build your wealth than investing in a REIT.

Fortunately, there are a lot of options for those who have more time than they have capital.

Wealth Building and Time Commitment

It is not enough to simply have time in your day, as the highest levels of involvement require dedication and effort, often to the level of a full-time job.

Wholesaling is an example of a time-intensive, rewarding occupation. A real estate wholesaler will find properties that are below market, contact a seller, put the property under contract, and sell it for a profit. Finding houses at the right prices and then finding the right buyer can be a full-time job, but it is a clear path to building wealth through real estate.

A real estate broker follows a similar path, connecting buyers and sellers, and often is a full-time job that rewards a significant time commitment. Real estate developers and syndicators are similarly committed occupations, raising capital from investors and managing assets (syndicator) and building and/or improving properties themselves (developer).

Growing Your Wealth

You may not be able to dedicate all of your time, but not all real estate investment strategies require a full-time commitment.

Raising capital is one of these options, and if you have a network of people who are interested in real estate investment, you can bring these investors to a syndicator in exchange for a portion of the deal. There are other ways that you can contribute to a real estate project using your existing resources and abilities, and these do not always require a capital investment.

You may not have the money to participate in an apartment syndication, but you might be able to flip a house or invest in a smaller property. You could buy a small, distressed property, put time into making improvements, fixing problems, and renovating, and then you can either sell the property or rent it out yourself. If you have the time to dedicate to maintenance and property management, this is a viable option to grow your wealth through a real estate investment.

Investing in a smaller property like a single family home or a duplex takes time and effort, especially if you are holding on to the property and would like to maximize your cash flow by taking on some or all of the maintenance and property management responsibilities. Likewise, you need to be attentive to costs and your potential return on investment. Again, there are other ways to participate in the real estate market, but the above is a clear, viable strategy to actually grow your wealth.

More Money than Time

For someone starting out, a well-executed home flip can make substantial progress building their wealth, but for investors with more money to invest, it is more difficult. For a wealthier investor, smaller-sized projects like house flipping may not be worth their time and may not move the needle financially. At this level, there are a number of different real estate investment options that depend on how active you intend to be, whether you are interested in owning and operating a large property, and how much risk you are willing to accept.

Investing with a real estate syndicator as a Limited Partner (LP) requires a greater capital investment but is less demanding in terms of time commitment. Many real estate syndication companies require a minimum investment of $50,000, though the exact number may be higher or lower depending on the threshold set by the company providing the opportunity to invest. Passively investing in an apartment syndication is a very effective way to grow wealth, and by being selective about the kinds of projects they choose for their investments, investors have a degree of control over of the amount of risk associated with their investments.

Each specific real estate project is different, but there are common categories that help investors determine the potential risk of an investment and its potential for cash flow and appreciation.

Core real estate investments prioritize stability and cash flow. There is less risk associated with projects of this type, and these assets often are less demanding in terms of asset management. A Core Plus investment strategy has slightly more risk, slightly more involvement, and a higher potential for appreciation. In an investment strategy of this type, minor improvements to the property or the management of the asset are employed to increase returns. A Value-Add investment increases the risk and returns even more. Major property improvements and management efficiencies are employed, with the goal of transforming the property into a high-performing asset.

Regardless of the level of activity, the risk profile, and the resources you have, there is a viable option for you to build your wealth through investing in real estate.

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