3 min read · Mar 6, 2024
Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.
~Andrew Carnegie
Real estate investment is one of the fastest and safest ways to build wealth and grow your net worth in this country.
Just to be clear, when I talk about real estate investing, I’m not talking about buying a home to live in.
That sort of investment takes money out of your pocket every month.
When I talk about real estate investing, I am talking about buying cash-flowing rental property that puts more money into your pocket.
There are 7 main reasons why 90% of millionaires are invested in real estate and why you should too:
Tenants pay rent. After expenses, what you have is monthly, recurring mostly passive cash flow.
This is a benefit that helps millionaires expand their wealth.
There is only so much time in a day, so if you’re only earning money by trading your time you are limited.
What truly builds wealth is creating multiple passive streams of income that are not connected to your limited time.
This is also something that differentiates real estate from investments in stocks.
Cash flow does not happen for the vast majority of stockholders.
Typically, you only make money when you sell the stock after and if the stock value has gone up.
Sometimes properties lose value, but over the long term, the value of real estate will nearly always go up.
This happens while the loan is being paid down, so as your property gains value or equity, your net worth increases.
Sometimes appreciation is a product of growth in the market and sometimes appreciation can be “forced,” by making targeted improvements in a property.
We mostly invest in apartment buildings. For our apartment buildings, we work toward both types of appreciation.
We buy in markets where we expect market values to rise over the next few years.
We also buy buildings that are renting under the market because the apartments are old and in bad shape and the previous owners are unable to charge market rents.
By rehabbing the apartments, we are able to start charging more rent and increase the value of the building. This is called “forced appreciation.”
When we sell the properties in approximately 5 years, we also recoup any appreciation in the market that may happen because neighboring properties are also selling for more.
Appreciation means you have a higher net worth.
There are many tax benefits to owning property.
Many people aren’t aware of them, but they’re one of the best benefits of owning real estate.
The government long ago decided that it wanted to encourage property investment, so there are many benefits that help people substantially lower their taxes including depreciation, mortgage and property tax deductions, no self-employment tax on rental income, and more.
Because of the many tax benefits, real estate investors often end up paying less taxes overall even as they are bringing in more income.
This is why many millionaires invest in real estate.
Not only does it make you money, but it allows you to keep a lot more of the money you make.
Principle pay down is a benefit enjoyed by real estate investors to build their net worth.
As you pay down your mortgage (which is OPM) with interest, with each payment you pay back some principle and come closer and closer to owning the property free and clear.
This allows you to build equity and wealth.
The doubly nice part about that is when you have a cash-flowing income property, your tenants are paying this down for you and helping you build your wealth and equity at the same time.
