Despite a massive Wall Street marketing machine that bills stocks, bonds and derivatives as the best method for long-term wealth creation, the fact remains that the vast majority of U.S. household wealth still resides in residential real estate. For those looking to start building an investment portfolio and who are looking for real wealth-building opportunities, the truth is that, for the average investor, there simply isn’t another investment that compares to the relative simplicity, ease and high returns of real estate.
A recent article in Forbes went through a few winning investment strategies that some of the top figures in real estate have used as a proven means to wealth building. Let’s take a look at a few.
Gentrification isn’t a dirty word
One of the single best ways to consistently earn outsize returns through real estate investing is to get in on the ground floor of a gentrifying neighborhood. Some of the most successful real estate investors of all time, such as Barbara Corcoran, have used this strategy to astonishing effect.
Corcoran says that her favored technique is to find up-and-coming neighborhoods by looking at where young professionals and artists are currently living. She says that it inevitably follows that as those people age and increase their earning power, they slowly transform their neighborhoods from a state of dilapidation to upper-class enclaves.
Buy residential real estate, and rent it
Ken Lebovic owns thousands of properties. But he has followed a very simple strategy to get there. He looks for attractive residential properties that are good prospects for long-term appreciation and that also produce decent cash flows.
Lebovic says that there are a few major advantages to focusing on residential properties. First, people always need a roof over their heads. This puts a hard floor on the extent to which residential prices can fall because there is always demand for them. Second, a residence can continue to appreciate even if it goes long periods without being rented. This is not true for commercial properties like strip malls where vacancies can negatively impact the value of the property itself.
Timing is important
As in all other forms of investing, the purchase price will largely determine the potential returns. Buying at market troughs can ensure solid long-term returns. Buying at market peaks can require years to realize appreciation.