It may come as no surprise to you that real estate has created more millionaires than just about anything else out there. In fact, there is a government statistic that backs this up. According to the Department of Health and Human Services, only 1% of the population retires wealthy. That's anyone with a net worth of $5 Million or more. What's interesting to know is that the majority of this wealthy 1% club; about three quarters, did it through investing in real estate and business ownership.
You can choose to follow public option and listen to the media, or you can be smart and do what the wealthy are doing. They're investing in real estate, and here's why:
1. Income
How would you like to go on vacation for a month and still get paid? That's what real estate can do for you. When you own a portfolio of properties, you can receive passive income, or "mailbox money." This is the positive cash flow you get when your tenants pay rent. Build a big enough portfolio and your passive monthly income could swell into the thousands. I know one investor who purchases apartment buildings and his monthly passive income is over $100,000! The other type of income is active income. This is money you can make from various short term strategies, such as wholesaling, rehabbing, short sales, etc. Quick, lump sums of cash. Yes please!
2. Tax Deductions
Did you know that you can virtually eliminate your tax liability by investing in real estate? You see, as a real estate investor and business owner, you have over 400 tax deductions available to you. For example, the IRS generally will allow you to depreciate the value of the structure on a rental property over a period of 27 & 1/2 years. If you are a W2 employee, it would be like getting a pay raise. When I was working for a boss, I set my taxes up about even. So I didn't owe anything and didn't get any money back. Then one year I purchased a rental property, and when I filed my taxes the following year, I got a refund of over $10,000! Nothing had changed other than the fact that I bought the property.
3. Appreciation
Ask your parents what they paid for their first house. Of if you're a little more "seasoned" in age, think back to what you paid for your first or second home. Now ask yourself what that house is worth today. I bet it's hundreds of thousands more. Don't you wish you had bought 10 or 20 of them back then? What would your net worth be today? Even when the market softens and goes through an adjustment, it typically swings right back. According to the U.S. Census Bureau, Median Home Prices went down only twice in the 43 years between 1963 to 2006. Now if you were to look at 2007-2008, that may be the third time prices went down. But over time, real estate trends up. The population continues to grow and there will always be a need for housing.
4. Equity
It's possible to lose equity, no question, but when purchasing real estate, you should always purchase the property below market value. This creates instant equity in the property. What better way to increase your net worth? I have a student who purchased six properties over a twelve month period. Their net worth increased to over $250,000 as a result of this. How long would it take you to achieve this without investing in real estate? Probably never.
5. Leverage
This one is huge. Let's say you got a hot stock tip, and you went to your bank and asked them to lend you $100,000 so you could buy the stock. What would they say? Obviously they would laugh at you and think you're crazy. But let's say you wanted to purchase an investment property, do you think you could get a loan on that property if you have good credit? Absolutely. This is called leverage, or using O.P.M (other people's money.) When you do the math, even if you receive a modest 6% appreciation on a property over time, you would still end up with a triple digit return because you are receiving that appreciation on the entire value of the property, not just your small down payment. The wealthy understand this, and it's one of the reasons why they continue to get more wealthy every year. Because the poor and middle class invest in CD's, Mutual Funds, etc. while the wealthy invest in real estate.
These are my top 5 reasons why you should add real estate to your investment portfolio. Are there risks? Of course. Any investment involves risk, but there are things you can do to reduce your risk. The longer you wait, the longer you delay your success. If you want to maximize your chances of getting into that wealthy 1% club, retire early and live the life you have always dreamed of, then it's time to get in the game! If others can do it, why not you?
Paul Zelig is an independent business owner and real estate investor. Learn about a solution to overcome the common obstacles that prevent most people from investing in real estate and how to minimize your risks. Visit http://www.TeamNewRich.com to find out more and to get your FREE Roadmap To Retirement calculator.
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