07.24.19
Forbes: Three Ways To Become A Millionaire Using Commercial Real Estate
By Lee Kiser, Kiser Group
There is a lot of money to be made in commercial real estate. In many positions in our industry, people can earn from $80,000 to almost $250,000 between salary and bonuses. That’s certainly a lot of money. But when you’re talking about going into seven figures in commercial real estate, there are only three tried-and-true roles where you can create real wealth: investor, developer and broker.
Investor
Successful investors in real estate can build wealth through long-term ownership and consistently building their portfolios. An individual can save up enough money for a down payment on, say, a six-unit apartment building. The income generated from that property will help the investor save up for a down payment on another building. Adding value to the building also drives the net operating income. The property can then be refinanced, and a portion of the proceeds can be used to purchase another property. Utilizing the cash flow from the investments or refinancing, an investor can keep buying properties every few years until they have the desired portfolio.
The downside to this is that growing a portfolio puts your own capital at risk, and the process to build up enough equity to become a millionaire could take an entire career. You will also be subject to the ups and downs of markets, interest rate volatility and the never-ending march of property maintenance and tenant service.
Developer
Being a developer is a way to make millions in real estate. For this reason, many people start their careers working for developers with the anticipation of learning enough to eventually open their own firms. What most people fail to realize is that developing is probably the highest-risk position in the commercial real estate industry. Developers bear high risk from the amounts of equity and debt in their capital stack. Successful developers are as much fundraisers as anything else. Most people do not understand cultivating capital partnerships and having strategies to weather economic downturns. Developers are most sensitive to changes in the economy. Although successful developers have paydays that outweigh almost everyone else in the industry, most have to survive years waiting for projects to come to fruition before realizing the fruits of the labor and risk.
Broker
A good commercial real estate broker has the potential to earn significantly more than $250,000 per year within two years of entering the career path. I can say this with confidence because I’ve been in the business for more than 20 years and owned my own firm since 2005. We have known and cultivated more than 50 six-figure-earning brokers. The most successful brokers in commercial real estate earn seven figures each year. I am one of those brokers, which is one of the reasons I started a brokerage firm of my own.
As a broker, you’re paid 100% by commission. Similar to investors and developers, you don’t make money in the beginning. I tell every new broker to anticipate not making any money during their first year. Some prove me wrong, but realistically, you need a year to learn the business, establish a business plan, research and build a database, and build your book of business. You have to work really hard, and it will take time to develop your pipeline. The major difference between brokerage and investment or development is that high incomes can be achieved without the risk of capital. In brokerage, the capital is time and effort.
A common misconception is that brokerage is just sales. Brokerage certainly involves sales, but so do many other professions: If you share ideas with other people in the hope they will approve or collaborate, you’re in the business of sales. Sales is helping lead people to make good decisions, not convince them to do something. In that light, brokerage involves sales, but being a successful broker is so much more than that.
Good brokers are integral parts of their clients’ businesses. They advise and offer opinions on investment decisions, ways to control expenses, renovations and financing structures, and they are a great source of leads for lenders, attorneys, inspectors, appraisers and other vendors to the industry. Brokers are the only common denominator for all parties involved in a transaction. People who learn the art of brokerage — and it is an art — earn incomes in commercial real estate similar to those of developers and investors.
I am unaware of any other position in commercial real estate that has such high potential income relative to the risk. This is why I believe brokerage is the best way to become a millionaire in commercial real estate.
