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.
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 is 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 stock holders. 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 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 to 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.
The ability to leverage is one of the greatest benefits of real estate investment. Millionaires understand that you are not limited to your own resources. You can leverage the resources of others to build your wealth.
There are 4 ways to use leverage to enhance your real estate strategy and investment options
This is by getting a mortgage and/or having investors invest with you. You leverage other people’s money (OPM) to buy a property.
An example of how we leveraged money was when we invested in a 77-unit apartment building in Albuquerque, New Mexico.
We got a loan from a bank for 80% of the value of the building. We also partnered with other investors to pay the 20% of the down payment plus the rehab. We invested our time and leveraged other people’s money to buy this property.
If you passively invest in projects, you can leverage other people’s time.
The active investor will find the deal and manage it, while the passive investor provides the funding. You can invest in real estate while using OPT. If you’re part of a syndication, you’re also able to take advantage of OPM because you’re piggy-backing off of all the other investors to get into the deal.
You are also leveraging time when you have property managers doing the work for you, and all you need to do is collect the profits each month. All of these time-leveraging strategies give you more time while still putting your money to work in real estate.
If you’re new and don’t have experience, you can leverage the experience of others.
When we were just starting out we were able to leverage the experience of others to help us get in the door and get our properties.
Our next-door neighbor Lydia is a bad-ass real estate investor goddess. She is the vice president of an investment fund and has personally worked on over $1.5 billion worth of syndications.
She had done most of her syndications under the aegis of her employer and wanted to work on her own deals. She was incredibly busy with her job though.
We had more time available, but not her experience. We were able to do a lot of the leg work and she was able to (much more quickly than us) evaluate and underwrite deals.
We partnered with her and her husband to find deals. With her vast experience on our team resume it was very easy to open doors and get brokers/lenders to take us seriously. We leveraged her experience to dramatically expand the breadth of our own knowledge while making money in real estate in the process.
The more units you have the more leverage you have within the property itself.
If you have a single-family rental, if you lose a tenant, your place is empty you are losing money. You have zero income yet still have to pay the mortgage, insurance and property taxes.
If you have two units and you lose a tenant, you’re still making 50 percent of your income. If you have 10 units, and you lose a tenant, you still have 90 percent of your income. If you have 100 units, and you lose one tenant you’ll still have 99 percent of your income. You get the point.
Leverage also works in the positive. If you leverage a bigger property, small changes make a huge difference.
If you have a single-family home and are able to raise rent by $50 per month, you can make an extra $600 per year. If you have a 100-unit apartment building you raise rents $50/month that’s $5k/month or $60k/year income. Furthermore, because the value of a 5+ unit is based off of net operating income, these increases will significantly increase the value of the property.
Lastly, when you have a larger place you have economies of scale that make it more cost effective to pay for professional property management. This means that you can have more tenants, but do less work (no fixing toilets for you!).
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 is allowing 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 your build your wealth and equity at the same time.
A re-finance is when you put in a new mortgage on a property. If your property has equity (from appreciation plus principal paid own), you can do a cash-out refinance (pull out some of the equity gained).
The best thing about a cash-out refinance is that it is not a taxable event. You have pulled out this income tax free.
A savvy investing goddess will use this cash-out refinance to buy more income properties, and grow her wealth in that way.
This is what one of our Real Estate Investor Goddesses, Sarah May did. She and her husband saved up some money and put a down payment on a duplex. They rented it out and started cash flowing on that.
They were able to save up some more for another duplex. From there they did a cash-out refinance and bought another duplex. Then she just “rinsed and repeated.”
When I interviewed her for my Real Estate Investor Goddess Handbook, she had just closed on her 10th income property, a four-plex, in the Denver Area where she lives. She and her husband did this in under 10 years.
And as of last year, they had created enough passive income from their real estate that she was able to “retire” from her 6-figure job as an engineer to be with their toddler full-time and to work on acquiring more real estate.
Having a business that simply “feels good” is particularly important to 7-figure women. In a recent interview I did with Barbara (Stanny) Huson, women and money expert, she said:
Once a woman has enough to have food on the table, a roof over her head, and a mani-pedi every once in a while, she no longer is motivated by money. What motivates her is how to help others. It’s a very different game. ‘How can I help others and be richly rewarded?’
If you invest according to the mission of the Real Estate Investor Goddesses, you can help others and be richly rewarded.
Our mission at Real Estate Investor Goddesses is to invest in properties that enable us to:
If you make a property and community better than you find it, than you are benefiting the tenants and neighbors.
If you are engaging in win-win transactions, it benefits all involved. Sellers are happy and you’re happy.
Everyone touched by your deal can be uplifted and benefited. Your income property is like a ripple of prosperity that spreads throughout the community. In every transaction the sellers, brokers, agents, property managers, other investors, and other service providers (lenders, accountants, contractors) are enriched.
And personally it feels good because while you are doing all this good you are making more money passively (i.e., even while you sleep, go on vacation, etc., your properties are making you money). This gives you financial and TIME freedom. Don’t you feel good already?