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How to Go From $0 in Savings to a Multi-Millionaire Real Estate Investor in Just 5 Steps

To most Millennials, the thought of becoming a millionaire by investing in real estate sounds like an unattainable pipe dream. Student loan debt and rising mortgage rates can make people feel that simply owning a home is out of reach.

The good news is, with a little bit of careful budgeting and some intelligent investing strategies, this lofty goal quickly becomes more attainable. Even people with $0 in savings can follow five steps to become multi-millionaire real estate investors.

It’s worth noting there’s no fast way to complete the process. Each step can take anywhere from a few months to many years. Additionally, the goal here isn’t to make anyone believe that becoming a real estate mogul is easy and attainable; the goal is to prove that the average Millennial can leverage the same strategies used by the wealthiest property investors to increase their net worth or fund their retirement.

Ready to be in it for the long haul? Keep reading to learn how to become a multi-millionaire real estate investor in just five steps.

Step One: It’s Never Too Late to Start Saving

Step one to becoming a homeowner is saving money. All prospective homebuyers will need to have a substantial financial foundation, but that doesn’t mean they all need to have ultra-high income. With current U.S. median home prices hovering around $375,000, a 20% down payment would cost $75,000. That’s a lot of money, but breaking the process into smaller steps makes it go faster. Think of short-term and long-term savings like a snowball: it may start as a single flake, but it can be rolled into something huge with a bit of commitment and perseverance. Even with mortgages that don’t require a down payment, substantial savings are necessary for monthly payments, repairs, and property taxes.

Open a Deposit Savings Account

The easiest way to get started is with a deposit savings account. Deposit savings accounts are flexible and convenient. They can be opened with almost any bank or credit union and require the smallest minimum deposits. Deposit savings accounts don’t build interest quickly, so people shouldn’t expect to save their entire down payment this way. This process may seem slow at first, but people should be discouraged. By budgeting carefully and moving a portion of every paycheck to a deposit savings account, anyone can quickly set aside enough money to move on to a higher-yielding savings account.

Level Up to a Money Market Account

Money market accounts are similar to deposit accounts, except that an individual can earn higher interest, meaning the amount within the account will increase automatically over time. The downside is that a more substantial deposit is required upfront. This can range from a few hundred dollars to upwards of $10,000. These accounts also charge fees if the balance drops below a specified amount. The best interest rates for money market accounts can go above 2%, but they can require a minimum of $25,000 or more deposits. The higher interest rates also make it harder to quickly withdraw money from the account. That said, money market accounts are a great set-it and forget-it strategy for long-term saving.

Graduate to Certificates of Deposit

A certificate of deposit is essentially a loan that individuals issue to a bank. This saving method often boasts high-interest rates but can be burdened by challenging liquidity. To pursue this type of loan, the saver should anticipate not having access to the deposited funds for anywhere from several months to an entire decade.

To purchase a certificate of deposit, the individual agrees to leave money with the bank for a predetermined time limit called the maturation period. The deposited amount gains interest (typically at rates ranging from 2% to 3%) throughout the maturation period. At the end of the maturation date, the individual gets a full return on investment plus interest. However, if they decide to withdraw before the end date, the bank will likely charge significant fees.

To really snowball their savings, people can reinvest the money into a different certificate of deposit to earn compounded interest.

Step Two: Optimize Your Credit Score

Even though there are mortgage options that only require a 620 credit score, all prospective homebuyers should strive to maximize their credit score to get the best possible loan terms. The goal should be to establish top-tier credit, typically anywhere between 740 and 800. Buying a home requires long-term commitment. People shouldn’t settle for less-favorable loan conditions because they have bad credit. It’s worth taking the time to optimize their credit scores.

Start With a Credit Report & Dispute Any Errors

To get great credit, people need to be realistic about their credit. A credit report will tell the whole story. People should identify any errors and dispute them as soon as possible.

Credit disputes can be filed online, over the phone, or in writing. People need to include as much detail as possible about the error you’re disputing. Disputes can range from misspelled names to payments incorrectly filed as late.

The credit reporting agency will investigate the claim and contact the creditor listed on the report. The creditor then has about 35 days to investigate the error and make a final judgment.

Credit repair can be challenging, but it’s the only way to take control of errors that are lowering credit scores.

Expand Payment History to Get Credit For Your Credit

Left unchecked, a person’s credit report may not reflect their entire payment history. Car payments, student loans, or other installment loans are all items that should be included in a payment history. If it comes up in a credit report that they’re not, they should be added as soon as possible. Every on-time payment increases scores, so all prospective homebuyers need to make sure they’re getting their due credit.

Unfortunately, on-time payments for rent, gas, electricity, WiFi, and smartphones don’t contribute to credit scores. However, people can expand their payment history even more by researching programs that incorporate these payments in their overall history.

Make Timely Payments on Student Loans and Other Debts

This one may seem obvious, but it’s too important to gloss over. On-time payments are the best way to improve credit scores. Many people believe that student loans are holding millennials back regarding homeownership.

While student debt can delay the financial plans for home buying, they don’t stop it outright. Student loans are one of the first lines of credit people have. Taking out student loans and paying them on time can help young people build good credit faster than people without student loans. All prospective homeowners should carefully craft their monthly budgets around student loan payments. Setting up auto-pay for a planned amount can make this easy and painless.

Minimize Credit Card Utilization Rate

A credit card utilization rate is the percentage of a card’s limit that’s been used. For example, if someone has a $1,000 credit limit and has charged $500, their utilization rate would be 50%.

When it comes to credit scores, utilization is one of the most critical factors. A high utilization rate can indicate that a person struggles to manage their debt. This can lead to lower credit scores and make it difficult to get approved for a mortgage.

People should aim for a utilization rate below 30%. This will show lenders that their debt is under control and they’re trustworthy candidates for a home loan.

Step Three: Invest In Real Estate Without Buying a Home

Once healthy savings have been established, Millennial homebuyers can start investing in real estate in earnest. “Investing in real estate” doesn’t always mean “buying a home.” There are many ways to invest in real estate without purchasing a property outright.

REITs: Entry-Level Real Estate investing

Real estate investment trusts (REITs) are essentially stocks for property developments, and they’re a great starting point for the basics of investing in real estate. To fund their operations, REITs rely on contributions from individual investors. These companies provide financing for high-earning real estate developments and then divide profits among shareholders.

REITs let people invest in a group of real estate assets, in the same way as they might invest in other types of businesses. REITs can be bought and sold like stocks, although certain stipulations may apply. And, REITs are a great addition to any portfolio because they’re typically high-yielding and very secure.

People who own stocks in a REIT share in the income from the property without having to worry about buying, managing, or financing it. There are several types of REITs, but the most popular are retail REITs and residential REITs.

Retail REITs are the most commonly used investment type in the U.S. Retail REITs fund high-overhead projects like shopping malls and other multi-use spaces.

Residential REITs are a little different. They fund the purchase and renovation of old, multi-unit apartment buildings or new construction developments. These are less common than retail REITs, but are still lucrative enough to help Millennials fund their first down payments.

Hand-Pick Stocks in Real Estate Companies

After gaining some experience with REITs, more savvy investors can venture away from trusts and look for investment opportunities within the broader realm of real estate. Picking a stock requires ample research, deep market knowledge, and acknowledging the implied risks. The process is more hands-on than working with a trust, but it can also be more rewarding since you don’t have to pay group fees. To pick a stock, find an exciting niche within real estate, and dive into daily news and trends regarding that subject.

Home development, for example, is a sector within real estate that always needs investors. When looking for a home building company to invest in, make sure they operate in an optimal real estate market. An optimal market would ideally have a high demand for new construction homes and low competition among other developers. Choosing the right stocks can lead to huge payoffs that make it easy to fund a down payment. 

Step Four: Fund a Down Payment & Buy A First Home

an architect talking to a real estate investor

When a person has been investing in real estate for a few years and has healthy savings, they’re ready to buy their first home. The amount of the down payment will vary depending on the market and the price of the home.

Traditionally, a down payment of 20% ensures lower monthly payments. However, learning about different types of mortgages can help Millenials buy their first homes without generating massive down payments. The three most common types of minimal down payment mortgages are FHA loans, VA loans, and USDA loans.

Fair Housing Administration (FHA) Loans

FHA loans are provided through banks and insured by the Fair Housing Administration. The primary advantages of FHA loans make homeownership more affordable to people who may not otherwise qualify for a favorable mortgage.

FHA loans are available through many lending institutions, such as banks, credit unions, and mortgage companies. FHA loans have a few key benefits:

  • Easier credit requirements (approvals start at scores around 500 with a 10% down payment)
  • Flexible terms
  • Smaller down payments
  • Lower interest rates

Banks can provide these loans to less-qualified candidates because the FHA pays for the mortgage insurance. Private mortgage insurance for someone who applies with an unideal credit score or a small down payment will usually make buying a home more expensive than renting. The FHA’s affordable mortgage insurance provides stability for the lender and the borrower alike, making them a great option for first-time Millennial home buyers.

Veterans Affairs (VA) Loans

Young people comprise a considerable portion of the U.S. Armed Forces. In fact, Millennial and Gen Z home buyers made up approximately 50% of all VA loans issued in 2020.

VA loans are home loans guaranteed by the United States Department of Veterans Affairs (VA). This program was designed to help military veterans purchase homes with no money down and no private mortgage insurance.

The VA guarantees a portion of the loan, which allows the lender to offer a lower interest rate. Additionally, the VA does not charge a fee for this guarantee.

Eligibility for a VA loan is based on several factors, including length of service, type of discharge, and wartime service.

VA loans are available through most lenders and can be used to purchase a home, build a home, or refinance an existing mortgage.

This unique loan can help launch service members into homeownership and even lifelong investing careers.

United States Department of Agriculture (USDA) Loans

The United States Department of Agriculture (USDA) offers a home loan guarantee with no money down for qualified applicants. There’s a catch, of course.

Eligibility for a USDA loan is based on several factors, including:

  • Location of the home (only available to designated rural areas)
  • Income of the borrowers (eligible applicants can’t have income higher than 115% of average U.S. household)
  • Type of property being purchased (the property must be their main home; no rentals are allowed)

To qualify for a USDA loan, the prospective home buyers should first verify the home’s address for eligibility. Population criteria for a rural area dictate that the area cannot have more than 10,000 people. However, the USDA will approve loans for areas with fewer than 20,000 people that have a “serious lack of mortgage credit for low- and moderate-income families.” There are also exceptions for non-rural areas with fewer than 35,000 people that can be described as “rural in character” and also face the same lack of mortgage credit.

One myth about Millennial homebuyers is that they only want to live in urban areas. Sure, Millennials love to be close to their offices and favorite hangouts, but data from the National Association of Realtors proves that young people are venturing out. For home buyers between 22 to 30, 19% purchased in small towns, and 13% purchased in rural areas. Meanwhile, 20% of 31 to 40-year-old homebuyers bought in small towns and 11% bought in rural areas throughout 2021. The number of young home buyers in rural areas is tiny compared to the number of young homebuyers in suburban areas. Still, it shows that USDA loans are a viable option for first-time Millennial home buyers.

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Step Five: Buy a Second House & Build a Real Estate Empire

After purchasing a primary residence, the most dedicated real estate investors can take the final step towards becoming multi-millionaire real estate investors. Very few people achieve true real estate mogul status. It requires massive amounts of capital and takes decades of ups and downs. However, Millennials don’t need to reach the levels of the world’s most famous real estate investors to have an impressive real estate portfolio valued at several million dollars. A few strategies can guide well-established investors to purchase more than one property and build a small empire.

Invest in a Short-Term or Long-Term Rental Property

One way to expand your real estate portfolio is to purchase a short-term or long-term rental property. This strategy can be used by Millennials who already own a primary residence and want to invest in another property. Short-term and long-term rentals provided passive income and the opportunity to boost net worth with multiple appreciating properties.

Short-term rentals are rented out for less than 30 days at a time. These rentals are targeted tourists, frequent work travelers, and other on-the-go types. The appeal of a short-term rental is that the owner can charge a higher price per night than they would for a long-term rental. In some cases, the owner can even charge more than the cost of a hotel. By marketing well and optimizing vacation rental tax returns, the amount of money earned from vacation rentals second mortgage, fund property taxes, and manage repairs without dipping into personal savings. Meanwhile, the property itself will gain value over time.

Tenants occupy long-term rentals for lease terms ranging from six months to several years. The appeal of a long-term rental is that they provide a fixed passive income, a welcome respite for people who are too busy to operate a vacation rental. While monthly income isn’t as high, the property damage is typically less extensive.

DIYers Love Fix-and-Flip Investing

Fix-and-flip real estate investing is another way to purchase more than one property and build a small empire. Fix-and-flip investing is the practice of buying (usually) cheap houses, making repairs or renovations, and then selling them for a profit. This strategy can be used by Millenials with exceptional DIY skills. Sometimes, investors will partner with more experienced contractors and split the profits of the final sale.

Take the Plunge: Become a Licensed Real Estate Agent Agent

Anyone dedicated to becoming a real estate tycoon should consider getting a real estate license. Becoming a real estate agent is usually pretty straightforward, but it can vary from state to state. In most cases, it requires a prerequisite course and an exam.

People who reach this level of investing typically do so as a full-time job and will most likely have their own brokerage. Once licensed, an agent can open a brokerage by registering their business with the state.

After that, the sky’s the limit. The highest-grossing brokerages in the country have billions of dollars in annual sales.

Reap The Benefits of Real Estate Investment

No one has to become a multi-millionaire (or billionaire) real estate giant with dozens of houses to enjoy the benefits of real estate investing. Real estate is famously one of the most stable investment options available. Adding any of these real estate investing tips to a thoughtful budget and financial plan can help Millennials supplement their primary income, grow their net worth, and bolster their retirement accounts.

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