HOW REAL ESTATE BUILDS WEALTH

Dated: 12/17/2018

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HOW REAL ESTATE BUILDS WEALTH - 6 Key Factors


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“Buy land, they stopped making it” - Mark Twain


Have you heard of the statistic that 90% of all millionaires have built their wealth through real estate? Have you ever wondered how? It's simple really, for me it all began with a mindset change. If you haven’t read the original and classic book - Rich Dad Poor Dad, I highly recommend it makes it to your reading list asap. I began reading several books a few years ago for self growth and improvement but this book changed everything for me almost instantly. It gave me the courage to do what I had in the back of my mind for years! Which was quit the corporate management world of doing unfulfilling work to make someone else rich and shift my philosophy about life, financial literacy, and how the two work hand in hand. Much of that revolves around real estate, and the amazing advantages of investing in it and in the right way.


So what makes real estate and investing in real estate so unique and attractive. I can provide you with a quick and high level list to make a strong illustration.


1. Cash flow

2. Quick Capital Gains

3. Tax benefits

4. Equity Buildup

5. Appreciation

6. Leverage


Let's take a quick, but deeper dive into each of the above:


  1. Cash flow, simply put is money you make from renters each month after expenses. Imagine monthly income repeatedly coming to you without having to punch in and out of  your typical 9-5. It can truly be this simple with proper regulations in place and or property management handling the backend work.

  2. Quick capital gains, this could mean profit after flipping a run down property, rehabbing it, and turning it for profit. I’m assuming everyone has seen the HGTV shows by now to have an understanding of how this works. While this method can be lucrative, it may not produce the long term wealth of some of the other benefits we will mention here.

  3. Tax Benefits are the reduced tax liability through depreciation, principal interest, and deferring capital gains tax that are exceptionally unique to real estate. There are so many more tax benefits than just the few I mentioned, I would recommend reading Tax Free Wealth or the Loopholes of Real Estate for a much more elaborate breakdown and understand of the truly powerful ways to take advantage of the tax benefits associated with real estate.   

  4. Equity Build Up is the gradual reduction of principal owed on your mortgage. Over time, as you make payments, this amount will decrease until the loan is paid off and you own the property free and clear. As an investment property, your tenants are taking care of this for you and building your equity while your property still produces monthly Cash Flow.

  5. Appreciation is the increase in value of a property over time. For example, in Orlando, over the past 3 years property values have increased by an average of 5-7% per year. Let's say you buy a single family home today for $200,000. We’ll also assume for the sake of this example, that property values grew by an average of 5% per year over the next 10 years. Your $200,000 home today will then be worth $325,779 by the end of year 2028. That is an increase of $125,779! That's almost a 63% boost in appreciation alone! There lies the power of compounding and appreciation in real estate. Of course, buying and targeting the right areas are key.

  6. Leverage, finally is the beautiful thing that lets you buy that $200,000 property with only $20,000 down (sometimes less, sometimes more). In essence, you get the full use of a $200,000 asset for $20,000 of your own cash. Even better, you receive 100% of the proprieties true value. By that I mean the cash flow, tax benefits, equity build up, and appreciation even though you put only 10 - 20 % down! Not many other assets give you these kinds of benefits. If you buy a stock for example you must put 100% down to get the full benefits of any particular stock; making it difficult for those will little cash to invest to make any kind of decent return, especially in the short term.


There is true wealth building power for those who want to learn how to and actively participate in investing in real estate. The 6 benefits above are a brief and high level outline of just some of those advantages available to those willing to learn the game and play.


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