How To Make a Billion Dollars in Real Estate

The annual Forbes Billionaires List speaks volumes about the movement and concentration of wealth across industries and geographies. The list includes two US-based self-made real estate billionaires added in 2015 and two added last year. How did these new members of the billionaires club make their money? What lessons can you glean from their success to apply to your business?

The 2015 additions both benefited from the boom in property values in and around the Bay Area. San Francisco-based developer Jay Paul (#1,250) debuted on the list with a net worth of $1.5 billion. His privately held Jay Paul Company owns 4 million square feet of high-end office space leased to companies like Amazon and Google Google. Sanford Diller (#1,415) joined the Forbes list with a net worth of $1.3 billion. His firm develops and manages high-end residential and commercial properties across the hubs of technology and entrepreneurship on the West Coast.

The 2014 additions to the list of non-dynastic real estate tycoons built their fortunes in New York. Jeff Sutton, ranked #642 in 2014 and #557 in 2015, is the founder and president of Wharton Properties which acquires and manages more than 120 New York City buildings leased to top fashion brands. David Walentas, ranked #1,210 in 2014 and #1,054 in 2015, is the founder of Two Trees Management Company rightly credited for transforming Dumbo from a rundown industrial area into a vibrant neighborhood.

Lesson 1: Go Where The Money Is

“Why do you rob banks?”, a journalist once asked Willie Sutton, Jr., a prolific American bank robber. Sutton responded: “Because that’s where the money is!” Applied to any situation, the moral of the story simply urges us to first consider the obvious.

Without exception, the four new billionaires on the Forbes list succeeded by following an unmistakable trend: the increasing concentration of economic growth around the hotspots of finance and innovation. Even with their intelligence and entrepreneurial gumption, they couldn’t possibly have succeeded, not on this scale, in a tertiary U.S. market.

This doesn’t necessarily mean that the next generation of real estate billionaires will also emerge from the cauldrons of creativity in New York and the Bay Area. The trend is your friend, as Wall Street traders like to say, but only until it isn’t, until inflated valuations limit the potential for profit and increase the risk of losses. Still, whether the next wave of real estate wealth comes from New York, San Francisco or elsewhere, it will most likely benefit the investors who understand that capital always chases growth.

This dynamic spurs demand for real estate. Property values increase as yesterday’s start-ups turn into today’s iconic corporations and function as magnets for talent and investment from around the world. Growing companies need commercial space, and their employees need to live nearby. Whether an economic boom is fueled by the fashion industry or technology innovations, it needs a brick-and-mortar foundation. This is not only true in New York and San Francisco; wherever you live, you can find a local hotspot positioned to attract interest from businesses, consumers and investors.

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