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9 Ways Real Estate Can Make You Rich

By Liz Brumer-Smith - Aug 29, 2022 at 9:10AM
Two people standing on deck of boat on a lake.

9 Ways Real Estate Can Make You Rich

Time-tested method to building wealth

Getting rich in real estate isn't a quick activity. But if you have some capital, patience, and the determination to learn and manage your investments properly -- real estate can be a tremendous way to grow your income and net worth substantially.

If you're looking for ways to pad your pocket and diversify your holdings, here are nine ways real estate can make you rich.

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Toy houses stacked in a row with arrows pointing up at an incline.

1. Appreciation

Real estate appreciation is the steady increase of a property's value over time. This happens naturally, thanks not only to inflation's impact on the value of the dollar but also to real estate's supply and demand. If you buy a property in a high-demand industry backed by long-term demand and short or stable supply, there's a good chance your property's value will be worth a lot more 10 to 30 years from now.

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Two people toasting outdoors at vacation cabin rental.

2. Rental income

Rental income is one of the most powerful ways to get rich. Not only can it be a more passive form of income, but rents, like real estate values, usually grow over time as well. And if you lock in a fixed-rate mortgage or buy a property free and clear, the money you earn each month after paying expenses can grow significantly.

Owning a few rental properties over a long period of time can be a reliable way to get rich, whether it's a long-term rental property or a vacation rental.

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A tax return with cash on top.

3. Tax deductions

Real estate investment properties can offer property owners certain tax advantages at tax time. Things like property expenses, including repairs, insurance, and other related costs for operating a rental property, can be deducted from your taxes and help lower your tax basis. You also have the benefit of depreciation, which is writing off a portion of the property's value to account for wear and tear.

ALSO READ: 9 Advantages to Owning Rental Property

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Person holding their hands out with a miniature model home in one palm and a slightly larger one in the other.

4. 1031 exchange

Saving money on taxes is a cornerstone of building wealth. While it may not seem like it's making you rich, it's definitely contributing. And one of the biggest tax benefits exclusive to real estate investing is a 1031 exchange.

When you sell an investment property, you are required to recapture any depreciation on a property. Add in the property's appreciation and likely profit you'd be earning at sale times, and you could be left with a hefty tax bill come sale time.

A 1031 exchange allows you to defer any capital gains incurred from selling an investment property by rolling those gains into purchasing another property. Rather than paying tens of thousands to potentially hundreds of thousands of dollars in taxes, you can use those savings to buy a larger investment property that generates more income.

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One arrow splits into three with each pointing at one of three pieces of real estate.

5. Leverage and liquidity

Real estate offers something most other investments can't: the ability to leverage a property and tap into its liquidity. Getting a mortgage allows you to make a smaller investment upfront, having the tenant pay the monthly cost of purchasing the home with rent.

Plus, you can double your leveraging abilities by getting a line of credit. If the property has risen notably in value, you can tap into its equity, gaining liquidity to fund property improvements, buy another investment property, or simply use at your pleasure.

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A person in a suit is holding a cigar while seated in an expensive-looking leather chair.

6. Net worth

Many investors reach a point where their goal isn't only to get rich; it's to build true lasting wealth. Wealth, by most standards, is defined by your net worth.

You add to your net worth for every investment you own that is valued at more than the debt owed on it. Real estate often increases your net worth notably because, over time, your net worth grows as the tenant pays off the property and its value rises.

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The word Dividends inside a torn-open dollar bill.

7. Dividends

Owning physical property isn't the only way to get rich in real estate. Investing in REITs, short for real estate investment trusts, is another popular way to grow your income through real estate. These special stocks invest in a wide variety of real estate assets and allow everyday investors access to institutional-quality portfolios across the globe.

Plus, they are required to pay dividends. And thanks to the power of dividend growth, an investment in the right REIT could pay off handsomely over the long haul.

ALSO READ: The 15 Best REITs to Invest in Right Now

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Person tiling a floor in a home bathroom.

8. Flipping or wholesaling

If your goal is to earn some cash quickly (relatively speaking), real estate has some options for you. Alternative investment strategies, like a fix-and-flip or wholesaling property, can generate large sums of money in a relatively short period, say, a few weeks to a few months.

These investment strategies come with many risks, however, as you're relying on a lot of factors to go perfectly for the investment to be profitable. But if done well, it's certainly a way to get rich.

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Two people shaking hands over a document, a model home, and house keys.

9. Mortgage income

Banks aren't the only ones with the potential to get rich with real estate. Individual real estate investors, like banks, can create and hold mortgages, generating a passive income stream. An investor can create a hard money loan or private loan for another investor or hold financing for a homebuyer on a property they may be selling.

There's also the opportunity to purchase existing mortgages at a discounted rate, increasing the yield and generating cash quickly.

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There's no one way to get rich in real estate

As you can see, real estate can help you get rich in many ways, now and in the future. The key to riches through real estate is knowing what you're doing. Proper due diligence and active money and investment management will help you keep your wealth.

The Motley Fool has a disclosure policy.

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