I Wanna Be A Property Billionaire So Freakin' Bad

Every year, Forbes magazine publishes its annual rich list featuring a bunch of people who are worth more than $1 billion. There are all the people you’d expect at the top of the list, including familiar names from the tech industry like Mark Zuckerberg and Bill Gates.

But also in the list are many billionaires who made their money through property. We’re not just talking about old hands here either. New property billionaires are still entering the market, thanks to the fantastic increases in property values we've seen over the last couple of decades.

Since 1995, the Case-Shiller index, a sort of measure of housing prices relative to their historical average, has been trending upwards. It reached it’s peak in 2008, before Bear Stearns went bankrupt and then declined significantly in 2009, but not down to the historical norm. Instead, it began rising again, a feature of the growing wealth being poured into the sector.


All this activity has produced a new set of billionaires. For instance, it’s led to the rise of people like Jay Paul who owns around 4 million square feet of high-quality office in the California area. He’s currently estimated to be worth around $1.5 billion and rising fast thanks to demand for his office space from the likes of Google and Amazon.

Other non-dynastic real-estate tycoons made a lot of money too. Jeff Sutton ranked 557th richest man in the world in 2015, and the founder of Wharton Properties saw his business expand renting space to fashion and luxury brands.

The question for all investors looking to make their first billion in property is always “how?” Let’s find out.


Lesson #1: Find Your Niche

Jeff Sutton is one of those humble billionaires who likes to pin his success on luck rather than any particularly insightful decisions that he made. But his story isn’t really about one of pure chance. Instead, it has a lot to do with the fact that he picked his battles wisely and focused on a particular area, getting very good at it in the process.


The reason Sutton succeeded is because he understood how Manhattan was alluring for high-end fashion and luxury retailers. Properties for sale in the area benefit from other high-end outlets nearby. It’s hard to imagine an equivalent property selling for even half as much in neighboring Jersey City.

Sutton built on the promise of Manhattan by giving retailers exactly what they wanted. Most wanted multi-floor operations, and so he began introducing that to his projects, dramatically increasing their profitability and making them more attractive to retail businesses.

The other genius of Sutton was being able to strike up deals with retail managers before even having built the buildings. Retailers would sign up based on his promises along, a testament to the trust that they placed in him as a developer. Getting the money up front, or getting a commitment in writing, meant that he could access cheaper loans from the banks. Instead of building the property first and looking for tenants, he looked for tenants and then built properties to house them all. Over the years, he’s attracted names like American Girl, Prada, and Armani.


Lesson #2: You Don’t Need To Understand Technology Or Fashion

It might sound strange in 2017 to say that real estate developers don’t need to have the slightest understanding of technology to do well. But the current President of the US is living testament to the fact that technological understand is irrelevant to making money in real estate.

What matters in real estate is understanding the needs of tenants. It doesn’t matter who the tenants are, whether they are families, students or businesses, providing the bedrock for them to thrive is essential.


Jay Paul, for instance, is a man who understands this well. He sees himself as a sort of spiritual successor to Levi Strauss, the man who first introduced the world to jeans during the 1855 Goldrush. Levi realized that working men in the mines need tough clothing that could withstand the harsh physical toil. Paul is doing something in California today, providing buildings that are perfect for the operations of companies like Amazon and Google who are spearheading California's 21st-century gold rush in computing and artificial intelligence.

He had the foresight to realize that businesses like Amazon need buildings that are suited to their robotic operations and so Jay Paul banked on the fact that Amazon would start demanding massive warehouses. Sure enough, it happened, and the prices went up, netting Paul a handsome profit.


Lesson #3: Stick To Your Guns

Most of the time the money in real estate isn't where investors think it is. Instead, it’s hiding out in undiscovered bits of land that everybody else has forgotten. Often a piece of land can appear to be worthless, but in the future, it can wind up being worth a lot of money. Top real estate investors don’t just look at current variables. They check to see how a piece of land or property could be affected by future development plans. For instance, often the price of real estate in a particular area can be affected by zoning rights and city development. Top investors look out for ways in which local authorities are zoning areas and what is likely to be built in the future. Correctly predicting future demand and businesses can mean that local prices balloon very quickly. When this happens, the opportunity for returns are exponential.


Lesson #4: Go To The Money

Sutton also has advice for budding real estate moguls. He asks the question, why do people rob banks? The obvious answer is that is where the money is. The same applies to housing.

Most of the property tycoons who made it into Forbes rich list were people who predicted that the biggest increases in real estate values would be clustered around those areas with the most dynamic industries. In large part, this is exactly what we have seen. Most of the rises in house prices come from places that are finance and innovation hotspots. Silicon Valley, San Francisco, Portland, and Seattle all experienced dramatic increases in real estate prices over the last several years. Areas with the least dynamic industries, like Detroit, on the other hand, saw the value of real estate plummet.

This is not to say, however, that the next industries will also spring up in New York and the Bay area or that growth will continue indefinitely: it won’t. It’s just pointing out that investor who do well as those who most effectively chase growth. Real estate prices in places like New York may continue to rise as they have done for a long time, but there is no guarantee. Many savvy real estate investors know that new fintech algorithms will soon render many brokers and mortgage advisors obsolete and so there will be less demand in cities like New York and Kuala Lumpur for their services and int turn, less demand for buildings in which they can work.

The best place to look for future growth is in the cities with the highest concentration of startups. Currently, that’s in places like Boston, Massachusetts, where dozens of startups based around the University are vying to become the next Google of robotics. If robotics does turn out to be a global industry, as has been promised for decades, then this is the city that will probably kick it all off. If that happens, then prices here will rise very quickly indeed.

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