Have you ever wondered how regular people like teachers, nurses, plumbers, and mechanics end up becoming millionaires through real estate? Are you hoping to learn the secret so that you can start building that kind of wealth yourself?

Well, good news- we've got the secret right here! And better news- it’s easier than you think.

What follows is our guide to the simplest, most proven method for building wealth through real estate. In this article, we’ll show you why single-family homes are the perfect investment vehicle for wealth creation, identify the five different ways these investments build wealth over time, and explain why it’s so important to think long-term. By the end, you’ll have a good idea of the kinds of properties to look for and how many it will take to make you a millionaire. 

The Ideal Investment Vehicle

When it comes to residential real estate, single-family homes (SFH) are one of the three main types of properties you can invest in, along with multifamily (duplexes, triplexes, quads) and commercial buildings (five or more units).

Commercial buildings can yield serious cash but come with high entry barriers, legal complexity, and big risk. Multifamily is great for experienced landlords, but often more than you’ll have bargained for if you’re just starting out or investing part-time. Many investors find that the best choice, by far, is single-family rentals. 

What makes SFH rentals such an ideal vehicle for your journey to becoming a millionaire? Well, for starters:

• They’re easy to finance- You can use conventional loans instead of worrying about commercial financing.
  
• They have less turnover- Families famously make stable tenants and they gravitate towards SFH rentals.
  
• There’s less vacancy- Less turnover means fewer months without rent checks.
  
• Repairs are simpler- It’s easier to get to the bottom of an issue when you’re dealing with one HVAC, one plumbing system, and one water heater instead of many.
  
• You can scale at your own pace- Start with one house and acquire further properties as opportunities present themselves / capital becomes available.
  
• They have great resale prospects- If you end up needing to sell, your buyer pool includes retail buyers as well as investors.
  
• They’re reliable performers- SFHs do especially well in C-class neighborhoods where you can usually pull great comps and demand for rentals tends to be very steady.
  

If your goal is to build wealth over time with fairly low risk, single-family rentals are the most beginner-friendly and scalable starting point.

The Right Exit Strategy

Once you’ve got a single-family home as your vehicle, you can officially start your journey down the road to wealth creation. There are a few exits you can take, all of which lead (hopefully) to profit including wholesaling, flipping, owner financing, and holding as rental. Only one strategy, however, is suited to long-term wealth-building. 

A wholesale will get you fast cash, but it will be a relatively small sum. A flip can yield a healthy payday, but just one. An owner financed sale can provide you with years of cash flow, but only until the buyer decides to refinance.

Holding onto an investment property and renting it out long-term, however, will steadily build you a fortune. Long-term holds allow you to stack your returns in a way that compounds value over time. In fact, there are five distinct wealth builders in real estate investment, and long-term holds enable you to take advantage of all of them.

The 5 Wealth Builders of Real Estate

When you invest in a SFH rental over two decades or more, you’re not just earning a few hundred dollars a month. Believe it or not, that asset contains multiple engines for wealth creation and the longer you hang onto it, the more wealth they generate. 

Here’s how:

1. Appreciation

Appreciation is property naturally increasing in value over time. Generally speaking, this happens quietly, steadily, and with little or no work. 

Markets can have ups and downs, but long-term holds are pretty resilient to those fluctuations. Housing tends to be a stable commodity across 15 to 20 year timelines and appreciation becomes a significant multiplier.

2. Loan Paydown

Loan paydown is using rent payments to cover your mortgage. 

Every time your tenant sends you a check, you’re able to gain more equity, reduce your debt a little further, and move closer to full ownership. This happens regardless of whether the market is up or down.

3. Cash Flow

Cash flow is the monthly profit you earn from rent payments. 

Cash flow is the most tangible of the five wealth builders. It’s money in your pocket every month and you start to see it right away. It’s not the main wealth builder, but it makes the investment sustainable so that the other engines can keep running. 

4. Value-Add

Value-add is the ability to make improvements to a property once you’ve purchased it that force appreciation and command higher rental rates.

You can acquire discounted SFHs that need work, which means you get the benefit of saving on your initial investment and have the potential to add value when you renovate. Updating kitchens and bathrooms, replacing CapEX, modernizing layouts, and adding bedrooms or bathrooms are all ways to add significant value to a property. This forces appreciation, creates instant equity, and allows you to charge higher monthly rates.

5. Depreciation (Tax Advantages)

Depreciation allows you to deduct a portion of an investment property’s value from your taxable income each year.

Properties used for business purposes (like rentals) are eligible for yearly tax deductions that are designed to offset the cost of wear and tear. This is one of the biggest advantages in all of real estate investment and of holding rentals long-term. It enables you to lower your tax burden, enjoy higher net cash flow, and reinvest your money instead of giving it to Uncle Sam. 

The Size of Your Portfolio

So, how many properties do you actually need to become a millionaire? Probably less than you think.

What it really comes down to is targeting your investments. Focus on purchasing discounted properties that offer solid value-add opportunities and have all-in costs of around 70% of after-repair-value (ARV). Stick to C-class neighborhoods with good comps and steady demand for rentals, scale at a sustainable pace, and then let time work its magic. If you do that, it really only takes a handful of properties to secure your financial future.

For example, let’s say you find a SFH in an established working class neighborhood that needs some love. You purchase it at a discount, renovate it, and start renting it out. Your numbers might look something like this:

Initial Investment Expenditure

• ARV: $150,000
  
• Purchase price: ~$80,000
  
• Rehab: ~$20,000
  
• All-in: $100,000 + ~$5,000 closing costs
  
• Total: ~$105,000
  

Monthly Expenses

• Mortgage: $500
  
• Taxes & insurance: $200
  
• Maintenance reserve: $150
  
• Management (10%): $130
  
• Total: $980
  

Cash Flow

• Rent: $1,300 per month 
• Monthly Cash Flow: $1,300 - $980 = ~$300
• Yearly Cash Flow: $300 X 12 = $3,600  

In the grand scheme of things, $3,600 per year may not sound like much. But let’s say you rinse and repeat several times until you build a portfolio of five properties that generate $300 of cash flow per month. That adds up to $18,000 per year. It may not be enough to quit your day job, but it certainly increases your financial freedom. 

And remember– cash flow is only one of the five wealth builders. The longer you own these rental properties, the more appreciation compounds, loans get paid down, value-add boosts equity, and depreciation reduces your tax burden. With a ripening period of 15 to 20 years, a portfolio of five modest but well-bought single-family homes will easily make you a millionaire.

The Importance of Thinking Long-Term

By now it should be pretty clear that this is not a get-rich-quick scheme. This is a strategy for building a fortune in a simple, sustainable way that provides a lifetime of security. You don’t need to start off with loads of capital, take huge risks, or even build a massive portfolio. Tons of regular people who started out far from wealthy have built significant wealth through small real estate portfolios and one very underrated resource: patience. 

Truthfully, you’re probably not going to notice one property making much difference in your life for the first few years that you own it. Maybe that extra $300 a month will buy you a date night or go into a rainy day fund, but it won’t make you feel rich. There will probably be times when it seems like more trouble than it’s worth, like when you suddenly have to replace a roof or deal with tenant drama. The key, however, is to stick with it. 

Muddle your way through the ups and downs, make a few more smart acquisitions, and guess what? The years will go by, you’ll look around, and you’ll realize just how much value you’ve gained from a little bit of money and a lot of patience. You’ll have full equity in stable assets that keep appreciating over time, thousands of dollars extra in monthly cash flow, and generational wealth that keeps growing. You’ll have resilience to financial setbacks like job loss or health issues. You can pay your kid’s college tuition and give them a debt-free start in life. Or maybe you can retire early and enjoy more of the people and things you love. 

And that’s with a portfolio of about five modest single-family homes! Just imagine if you decide to acquire even more or start investing in multifamily buildings. There’s really no limit to the possibilities of what you can achieve if you’re willing to play the long game. 

The Bottom Line

Becoming a millionaire through real estate isn’t as complicated as most people think, you just can’t do it overnight. You don’t need to be a full time investor who owns giant apartment complexes or flip a bunch of high end properties. All you need to do is find a few SFH rentals in solid neighborhoods at the right price and hang onto them. It really is that simple.

Looking to speak to someone with insight into the kinds of homes and neighborhoods that will make you a millionaire? Find your local Evernest Investor-Friendly agent to get started.