Investing in Real Estate: How Long Will It Take To Make You Rich?

05/05/2024

Real Estate Value Concept with an House and Prices Chart

Investing in real estate could make you wealthy, but it probably won’t happen right away. For many individual investors, it can take years — or even decades — before they start seeing true wealth.

The average residential property generates around 10.6% in annual returns, according to Forbes, while commercial properties see returns closer to 9.5%. But like any investment, there are no guarantees. Sometimes, factors beyond your control can affect your returns — either for the better or worse.

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If you’re thinking about investing in real estate, here’s how long it might take you to become rich and the key factors that can impact your returns.

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Turning a Profit Can Be Quick, but Becoming Rich Takes Time

Depending on how you go about it, you could start profiting from your investment within weeks of getting started.

“It all depends on what you think rich is and the actions you take. For example, we have done a lot of wholesale deals where we purchased a house and sold it for a profit a few weeks later. That profit is typically $10,000 or $20,000,” said Kim Tucker, a real estate investor with KCMOHomeBuyer.

“But we have had one that had an $80,000 profit and another that had a $120,000 profit,” she said. “We were just in the right place at the right time and had the knowledge and support system that allowed us to put these deals together.”

That being said, building true wealth via real estate investing takes time. According to Colten Claus, an associate broker at 8z Real Estate, here are some rough timelines of how long it might take:

It can take one to five years to see short-term but still potentially high profits, such as those gained from flipping properties in fast-appreciating markets.
For those who purchase rental properties, it can take between five and 15 years to generate substantial income.
Those seeking to become rich can expect to see significant returns within 15 or more years, especially if they hold their properties over multiple market cycles or until the timing is most favorable.

“Regarding the timeline for building wealth through real estate, it varies significantly based on strategy and market conditions,” added James Shorten, president of Shorten Homes. “Based on my experience, investors who focus on developing or renovating properties in high-demand areas can see substantial returns within three to five years. However, longer-term investments can also be fruitful, particularly when leveraging trends like the growing demand for energy-efficient, customized modular homes that cater to evolving homeowner preferences.”

Location Plays a Major Role

You’ve heard it before, but it bears repeating — investing in real estate is all about choosing the right location.

“No. 1 rule of real estate: location, location, location. This is a major factor through which you can determine the return you’ll get from investing,” said Nick Hedberg, licensed real estate agent and owner of As-Is Home Buyer. “Places that are more developed, have more attractions, grocery stores, entertainment areas and suburban appeal are generally considered to be sold at higher rates than others.”

The more in-demand your area is, the faster your investment could grow and earn you those high returns. But keep in mind that the regulations in that area could still impact your ability to build wealth — especially for rental properties.

“Changes in property taxes, rent control laws and landlord-tenant regulations can impact the profitability of real estate investments,” said Claus.

The Market and Economy Can Also Affect Your Returns

You might not always be able to time the market, but making some strategic investment decisions based on the current market can go a long way in helping you build wealth.

“Buying properties during a market downturn and selling or renting during market highs can maximize returns,” said Claus. “However, timing the market can be challenging and requires an understanding of economic and local real estate trends.”

On that front, employment rates, interest rates and the overall economic environment can all affect your investment’s potential returns. This is true with rental properties and those bought and sold as residential homes.

“For instance, high employment rates boost demand for housing, whereas high interest rates might reduce it,” said Claus.

Certain Types of Properties Might Generate More Wealth

As a real estate investor, you could potentially see higher or even quicker returns depending on the type and condition of the property you’ve invested in.

“Different types of properties offer different risk and return profiles. For example, residential properties are often considered less risky than commercial properties but might offer lower returns,” said Claus. “Well-maintained properties attract better tenants and require fewer costly repairs.”

There Are Many Ways To Build Wealth Through Real Estate

So, what are some of the best ways to earn a profit from real estate?

“You can earn profit from the spread between the rental income and the rental expenses. You can earn profit from appreciation. And you can profit from depreciation,” said Tucker.

You could also purchase a property at below-market value and sell it for more. This particular method usually doesn’t require as much capital, making it a potentially more viable option for newer investors.

“The best way to start is to spend time getting educated on the various ways to profit in real estate,” said Tucker. “Your local real estate investor association is a great place to start. They have the education you need, the support system to help you get started, and are a great sounding board when you need help.”