How fortunes are built on real estate?
Hey everyone , i'm not sure if i should be asking this on this subreddit but i have questions and i really don't find any good answers/stats on internet. So I remember that in High school, my history-geography teacher told us that most of the millionaires and other very rich peoples built there fortune in real estate. I don't know anything more than the average person in real estate and so i really wonder how people usually build a fortune on real estate. 
I don't search a guide of "how to become a billionaire in 3 steps thank To real estate" (that's the type of shit i only found on google so that's why i'm asking you here). 
I wonder how people manage to earn millions in real estate. I would love To see stats about how successful people in real estate made their fortune if it exist. Or at least some people To explain me what are the ways they know about. I'm really curious and couldnt find any good answers. Thx for reading this and sorry for my english i'm not a native english speaker.

Edit : thx for all your answers even if there is some complicated words in it (related To real estate ofc) i didnt expect that much answers!
[{"id": "fanfsbj", "text": "The short answer is fees. You need to own your own company, doesn't matter if it's  a brokerage or an investment firm. If you're a brokerage, you earn a commission on every deal you help someone close. With a high performing team that really adds up. If you are on the investment side, you get to charge your investors various management and performance fees. You can set it up so you get paid huge fees if your investors make money, so a successful operator can make lots of money if they are able to sell their properties for more than they paid for them. The bigger the firm, the bigger the dealflow, and the higher potential for fees. Another option is to use other people's money to build up a small empire, then take the holding company public and make a fortune that way. Most wealthy people who made their money in property did it as owners of their own company and pursued one of those options.", "replies": [{"id": "fanfx0h", "text": "Thanks for your answer , if you have any good link share me plz :)", "replies": [], "depth": 2}], "depth": 1}, {"id": "fangqns", "text": "Im in one of those real estate families. There are plenty of ways to become financially independent through real estate,  with risk often correlating with how high you want to fly.  Most brokers never build a fortune and i don't consider real estate brokerage to be a massive fortune building operation substantially different than any other business so I'm leaving that out.  \n\n\nOn the low end is flipping houses which is a job most seasoned pros avoid. \n\nNext would be something like acquiring smart rental property.  \n\nNext would be acquiring smart commercial property.  \n\nNext would be value add operations\n\nFinally massive value add operations (development) and long term holds on prime property\n\n\nThat's an extremely broad brush stroke of it. If you're serious about it get off reddit and go absorb the Urban Land Institute,  ULI", "replies": [{"id": "fans1hr", "text": "You left something critical out here; the effect of time. You won't read about someone suddenly striking it rich in real estate. Nobody generates their first billion off a single deal. Building wealth in RE requires a massive amount of time, a lot more so than trading more liquid assets like stocks. I would argue with OP's teacher that most ultra HNW families built their fortune through RE - that held true 200 years ago but not today. Today the ultra rich invest in RE because it offers the best balance between potential upside and downside protection compared to other comparable asset classes. It is, and always has been, the best way to modestly grow and maintain wealth, but definately not the fastest way to win a fortune. /u/Sasquatchii last point about value add operations (development) is the most lucrative form of RE investment (as well as by far the most risky), however even in there it can often take 5-10 years to realize all the gains from the work you have put in.", "replies": [{"id": "fapfxcn", "text": "Yea, i left out 99% of it lol\n\n3 primary benefits of RE are : \n\n- cash flow\n- tax benefits\n- future benefits/ appreciation \n\nYou could add \"could do on the side\" to that list if you're ok playing small ball", "replies": [], "depth": 3}, {"id": "faq4g9p", "text": "I don't even think it's historically true.\nThe wealthiest families of the industrial age were built on oil, railways, etc.", "replies": [{"id": "fb2wkq4", "text": "I don\u2019t know who downvoted you, but you are correct.", "replies": [], "depth": 4}, {"id": "fb84h9n", "text": "yeah you have to go back before the industrial age... i'm talking like European royalty or empire building... not exactly real estate, more like The State.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "faom1qt", "text": "Agree with all you wrote, but with two additions:\n\nVery favorable tax treatment of real estate gains and also subsidy of real estate debt. Almost no work let\u2019s you play with your tax bill as much as real estate income and the capital gains tax itself is criminally low. Also the credit markets for real estate are effectively subsidized by the government through the Federal Reserve, Fannie/Freddie, and many other ways. When you are wealthy you are able to get debt at a large scale, many times without even having much personal recourse, which is a huge advantage in our banking system for the wealthy.", "replies": [{"id": "fapg09j", "text": "Good additions.", "replies": [], "depth": 3}], "depth": 2}, {"id": "flficsz", "text": "Awesome write up. One question I have for you, I am working for a small company and we are at the value add operations stage, I was wondering if you had any insight you were willing to share about how you have done that with some of your previous commercials properties?  I know that is a very vague question but any insight would be great", "replies": [{"id": "flhih3a", "text": "Sure - the most important/obvious is, buy it right! You make your money when you buy the property. If you pay too much at the beginning you'll be assigning your future profits/ working for the seller. And you don't find good deals, you make them. People don't pass up $100 bills laying in the street. \n\n&amp;#x200B;\n\nAdding value to commercial properties isn't our specialty. We create big-time value by developing new space from raw land. I can talk to you about that all day long but in regards to renovating existing commercial... I'll just say that the guys I know who do it most successfully are those who best understand the direction of their own market. If you're in a hot area (I hope you are) then look at what happened during the last 10 years, and try to understand the trends in your local spot. I swear, some of the guys I know seem like they have a crystal ball sometimes....", "replies": [{"id": "flhpwqc", "text": "Thanks a lot I appreciate the insight. We are in a semi \"hot\" area, just on the outskirts of main downtown area, so urban walking streets that are just starting to turn around from sketchy area to a destination so we have a solid footing. We are putting in restaurants and stores (following trends that the market supports) into rehabbed mixed use building we own and its going great, but as you know always trying to find creative ways to add more value is good business.  \n\nWe are keeping our eyes open on what we can turn into good deals. Things are a bit on hold now with the virus chaos but hopefully back on track soon. Thanks again for your knowledge", "replies": [{"id": "flk68wf", "text": "That sounds like a fun lane to drive in. For what it's worth I think the industry (through a macro lens, your local trends rule) is trending toward higher valuations on essential in-person retail (drug stores, nail salons, groceries, etc) over things that can be purchased online /delivered. I'm guessing Coronavirus will push the industry even further in that direction for years to come. \n\n&amp;#x200B;\n\nBest of luck to you.\n\nRecessions are oftentimes the best time to get shit done in this industry...", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fanj891", "text": "It\u2019s pretty basic math. 1st there\u2019s a set supply of property. There will never be more than currently created. 2nd as part of monetary policy, the Federal Reserve has a set inflation rate it considers healthy, usually 2%. So over time, the dollar becomes worth less and real estate with a set supply becomes worth more relative to the dollar. 3rd, even if you have little to no down payment, you can get lots of leverage on your investment (ie rental home) and have renters slowly pay off the mortgage. So let\u2019s say you have a 15 year mortgage, even if you start with $5000 down, you\u2019re slowly paying off the principal balance, acquiring equity while the home grows in value over time. So after 15 years you have an asset that\u2019s worth maybe $200k. It\u2019s a double whammy. As long as the local market is healthy, population and economy grow, it\u2019s pretty simple.", "replies": [], "depth": 1}, {"id": "fanlaue", "text": "1. Find a piece of property. \n\n2. Borrow money from the bank. \n\n3. Acquire property. \n\n4. Market and ground lease property to national tenant. \n\n5. Sell ground lease. \n\n6. Use the spread to do it again but on a larger scale.", "replies": [{"id": "fao7w5r", "text": "I'm new to CRE, but why don't more investors buy a vacant, but good commercial property, and work with a broker to put a tenant in there? Aren't you effectively buying the asset cheaper and 'forcing equity' by putting a tenant in?", "replies": [], "depth": 2}], "depth": 1}, {"id": "fanr7fl", "text": "The answer to your question is real estate 'development.'  As far as building 'fortunes' anyway.  The kind of people your history teacher was talking about.  Quick real life example of this and what I learned from it : I started working for a commercial real estate firm right out of college.  I obviously admired the ownership family and wanted to emulate them, studied them.  They owned about 3 million square feet of real estate with low leverage.  1000 apartments units paid off (owned since the 70s), plane, yacht, etc.  So I assumed I really needed to start buying buildings and get in the game.  They have buildings, I need buildings.  Well 20 years have gone by, I still work for this company, I have been as ambitious as humanly possible from an investment standpoint.  I own about 45 bedrooms of apartments, 20,000 feet of office buildings.  I make about 9,000K a month and this is mainly because I paid off a couple small 4 plexs.  Hardly a fortune.  Not even enough to start my own management company.   So here is my point - the owners of the company I worked for turns out, made their fortune in the 1970s by development houses.  Owner went around knocking on farmers doors with an offer sheet in his hand, built and sold thousands of houses in the 70s.  Reason he bought all the office buildings was just to shelter the money, passive income, tax purposes, inflation hedge, etc.   Fortunes are built in real estate in development, not what I am doing.  If I could do it all over again I would get a structural engineering degree in college and start a construction company.", "replies": [{"id": "fao07kx", "text": "Out of curiosity, if you\u2019re able to bring in 9000/mo right now, what\u2019s stopping you from starting a construction company *with* a structural engineer partner who has no knowledge of the real estate market?", "replies": [{"id": "fao2pdu", "text": "Why on earth would he need/want a structural engineer?", "replies": [{"id": "fao2xdm", "text": "Haven\u2019t the foggiest as I\u2019m not that type of engineer. But he said if he could do it again, that\u2019s what he\u2019d be to start a construction company. I was just remarking that the buck doesn\u2019t stop at graduation and there are always ambitious and talented people looking for partners just like them who\u2019d be happy to get into such a business.", "replies": [], "depth": 4}], "depth": 3}, {"id": "faobn83", "text": "Its doable at some point and fair suggestion rjhall90.  But right now I need my real job (in house asset manager) which is regular 9-5.  Need the benefits.  2 kids.  9K month seemed like a ton to me at age 25 even 30, but not so much anymore.  Its not enough of a cushion for me until I get kids through college as far as being able to start a business.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fanuvmj", "text": "Slowly", "replies": [], "depth": 1}, {"id": "fanxhs0", "text": "There are a million different ways to make money in real estate, but as for making a \"fortune\" the most common way....leverage (which adds risk - and during times like 2008/2009.....too much risk that absolutely destroyed people)\n\nBUT, you want to know how to make a fortune regardless of the risk, basically it's pretty simple and I'll use a hypothetical example that ignores a lot of details but it's enough to get an idea.\n\nAssumptions:\n\n1. you have perfect credit and can get any loan approved.\n2. Property value appreciates at 2%\n3. 100% rental occupancy (not gonna happen IRL but makes math easier)\n\nLets say you get a small loan of a million dollars. With said loan you buy a used 10-plex renting for $1000/unit/month. You've spent $0, you are 1 million in debt and you have $10k in income per month.\n\nAfter 1 year, you have made $120k gross, lets say spent $20k in repairs and $50k spent paying off the mortgage. The property has appreciated in value $20k as well that year assuming 2%.\n\n1 year summary: $50k profit for you, $70k owned and 950k debt\n\nAssuming this repeats for 5 years: at the end of five years:\n\n5 year summary: $250k profit for you, your apartment complex is worth $1.1 Million, and you owe $750k, Over five years you've essentially made $600k with zero money invested.\n\nCompare that to investing in the stock market with an assumed growth of 8-9%, you would need roughly 1.3M invested for 5 years to get $600k growth.\n\nThis is why people say that \"fortunes\" are made with real estate, because you can (technically) start with nothing, and make a fortune. And most people don't stop at a single 10-plex, they buy ten 10-plexes, and make $6 Million in 5 years instead. As long as A: a bank will loan the money, and B: the real estate market doesn't crash, and C: you have renters to pay you, this is how fortunes are made.\n\nBUT....it's also how fortunes are lost and survivor-ship bias is strong.......\n\nEdit: fixed typo", "replies": [{"id": "fao5vwi", "text": "&gt;  you have $12k in income per month\n\nTotally agree with the post, just wanted to nit-pick: this should be $10k.", "replies": [{"id": "faob7iz", "text": "Thanks, should be fixed now", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fany5bw", "text": "Here is a copypaste of something I wrote from a thread a few months ago.\n\nOther peoples money. Welcome to private equity real estate 101\n\nLets say I buy a property for $4m. I use a loan of 75%. I only need $1m. However, I dont put in $1m of my own money. I put in $200,000. I then go to wealthy individuals and invite them to invest alongside me for the remaining 80%. I collect a management fee. I also recieve a promote. Usually I take a fee of 1% of the total asset price upfront. So in this case by purchasing the asset my investors pay me $40,000. Usually I give them a preferred return. I will pay them 7% cash on cash with catch ups if a year does not achieve that return. After that we share the profits above that amount anywhere from 80%/20% to 50%/50% depending on how much anticipated excess profit there is. Less profit means your investors get a larger share of profit. If you anticipate more profit then you can take a larger share. usually I underwrite to a mid teen IRR net to investors and base the split on what I can get the investors.\n\nI can achieve a 3x-4x or more return on my money in a 7 year window on the right deal. Dont listen to people talking about the value of the asset going up. Its an investment, not a gamble. You need to know there's upside for you regardless of if the area improves or not.\n\nDo enough of them and all the sudden it grows exponentially.\n\nFind enough investors and all the sudden looking at a deal under $10m isnt worth your time. Do 2 deals that size a year and thats $200,000 in fees a year to pay for groceries, your personal mortgage, and a few weekends in the hamptons or a few days in Aspen to meet more prospective investors. And then you're collecting promotes on the backend. Thats where the millions are made to buy the house in the Hamptons or Aspen.\n\nEveryone else is giving advice on capital preservation. Screw preservation. Thats for your bankers at UBS. Gladly pay them a fee to ensure you achieve market equivalent returns with downside protection. This is about wealth creation.\n\nmy credentials: 3rd generation real estate developer. 2nd generation at current iteration of family business. One of the signifigant regional private owners and developers in my market", "replies": [{"id": "fao6cd2", "text": "Can you go into more detail with regards to the promote and how that works? Also the backend effect?", "replies": [{"id": "faoo4vp", "text": "Promote is the increased equity or profit share the developer or sponsor keeps for their work on the deal, relative to their cash contribution.\n\nExample: Similar to OP, I have a real estate deal cost of $4M, with $1M equity required. I put in 200k, and another guy puts in the remaining 800k. I should own 20%, and he should own 80%, right? Not exactly, because I am doing all the work, so I want compensation. I want a 10% promote. I get 10% ownership for running the deal, and we split the remaining 90% of ownership 80/20 per our cash investments.\n\nI put in 200k and get 28% ownership. He put in 800k and gets 72% ownership.\n\nRegarding backend, he is simply differentiating between any \u201cfrontend\u201d development fee (say 1% of the project value, or 40k cash up front), and any \u201cbackend\u201d promote (28% ownership of the completed project).", "replies": [{"id": "faos65r", "text": "I couldn't have said it any better", "replies": [], "depth": 4}, {"id": "faouyc2", "text": "This is great and thorough, I appreciate it. \n\nSome additional questions\n\n1. Is/can the \u201cfront end\u201d fee be annualized? For example, similar to the 2 &amp; 20 model used by hedge funds as the investors in this real estate scenario are getting a return on their investment whether by exit (sale) or operating income (tenant leases, etc.). \n\n2. Can this model be applied to acquisitions and not just development? For example, if you acquire a $4M commercial property, going along with your example, you\u2019d be entitled to $40k (front end) for introducing the investor to the opportunity and 28% of the annual income, net expenses, correct? \n\n3. Let\u2019s say the 800k is brought in by more than one investor, how would the dynamics change?", "replies": [{"id": "farbqns", "text": "Anything could be, if you find people who will take your deal.\n\n1. Most developers/sponsors want their development fee up front. Savvy investors want sponsors to contribute their fees and get paid at refi with the investors. Any number of scenarios can happen between those two bookends.\n2. It certainly could, but most investors would not take the deal. There are two many brokers who will source deals for a fee to make any kind of promote on straight acquisitions attractive. Value-add deals (refurbish, rerent, refi) are the probably the minimum to seek real promote.\n3. They don't, except that the investor share is split between the investors pro rata to their contribution. A typical 300+ unit MFR deal at $50M total cost will often have 10+ investors varying from 500k at the low end to 10M at the top end. They all own the same class, pro rata to their contribution on the investment share side.", "replies": [], "depth": 5}], "depth": 4}, {"id": "fjp9xq7", "text": "How do you get approved for a $3M mortgage if your income is based off the proceeds from the investment in question?", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "faoch71", "text": "Howdy. Thanks for sharing! Do you ever visit the normal REI sub? Would you be interested in an AMA? Once verified I know the community would benefit hearing from somebody who does more than the occasional flip or just SFH rentals on the smaller scale. \n\nSource: one of the mods", "replies": [{"id": "faos2ob", "text": "sent you a DM", "replies": [], "depth": 3}], "depth": 2}, {"id": "flfi2g5", "text": "Im late to the game on this one but I just wanted to say this is awesome info. One question I have tho, based on what sounds like tons of experience from your end, What kind of deals are these usually or what do you do a lot of? New builds, redevelopments etc. or is it just any project that can turn a profit? any insight would be awesome thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "faoai25", "text": "My buddy is a property manager and told me how his boss bought undeveloped land. Signed contracts with a developer and netted 3million in profit off just buying this property and knowing his shit", "replies": [], "depth": 1}, {"id": "faoe9lw", "text": "its very simple.  real estate is usually an appreciating asset.  plus once mortgage free, usually generates positive net income.  in the right market and conditions a real estate investor can produce more income from this investment as opposed to other forms of investment.  \n\nits simple.  if you own a property that cost you say 100k plus you took a mortgage out for another 200k, that property cost you 300k.  however the property has rental income which will go towards paying the bank back.  once you finish paying the bank you now have a property that just went up in value since you bought it (again, in ideal conditions) and your expenses went down dramatically bc you have zero owed.  most of the rent will end up back in your pocket.   \n\nhow do people build fortunes.  they take out secondary loans on their property and they use that money to buy even more property.  that's the basics.  of course its a lot more complicated and complex than that but there's the gist.", "replies": [], "depth": 1}, {"id": "faoeu9h", "text": "Many people think that making money and building wealth with real estate is buying a property and renting it out to a tenant. Thats what the majority of people in this country believe. \n\nI also quickly found out that it wasn't the only way.\n\nThere are so many methods of building wealth in real estate and you have to choose one and master it then move on to the next strategy. \n\nStudy ,study, and study some more is my recommendation. \n\nWholesaling, seller finance, lease options, straight options, house flipping, BRRRR, and much more to name a few.", "replies": [], "depth": 1}, {"id": "fav0k5i", "text": "Grit, hardwork and lost of capital", "replies": [{"id": "fearrfe", "text": "And internet lol, most listings are already across the web.  Digital is the new thing so apps like Realtor, Trulia and Zumbly are born", "replies": [], "depth": 2}], "depth": 1}, {"id": "fb5bd03", "text": "How do you live off rentals in the beginning of accumulating many buildings? \n\nWonder how the dynasty families lived off the small cash flow when they just started. Maybe they had another business but you get rich with time in this business.", "replies": [], "depth": 1}, {"id": "fmutju0", "text": "Dukeaw\u2019s answer was the best", "replies": [], "depth": 1}]