Do you know what 90% of millionaires have in common? Well, as billionaire Andrew Carnegie once famously stated, their biggest source of wealth creation lies in real estate investments! So, if building wealth has been on your mind, you might be wondering how to make your fortune just like the millionaires do.
Now, the great thing about real estate is not only is it a fundamental element of a well-diversified portfolio, but it’s also an incredibly accessible avenue to build wealth. Whether by earning passive income by renting out a property, or generating wealth through property appreciation, real estate investments have a huge potential for success.
What you need to know, however, is that real estate is no ‘get-rich-quick’ scheme, meaning there is no shortcut to becoming wealthy. Rather, long-term wealth can be built steadily with a smart investment strategy.
Above all, millionaires are careful where they put their investments. Some aren’t into cryptocurrency, whereas others aren’t interested in trading or online businesses, but real estate remains a popular asset class. So, let’s go over 5 reasons why real estate tycoons, like Donald Bren, Sam Zell and Stephen Ross, count on real estate investments to build their wealth.
1. Steady Passive Income
One of the key benefits of investing in real estate is the ability to generate regular, passive income. Compared to other assets, like stocks, owning a property assures the investor of stable, recurring monthly dividends that will likely increase over time. With stocks, on the other hand, you would only generate money after selling the stock, and that’s only if it’s gone up in value.
This is why millionaires feel financially secure with real estate investments, as there’s a consistent flow of returns. As long as the property is rented, you, as an investor, can expect to earn regular income, which is convenient if you’re after a long-term investment as part of a retirement plan, for example.
2. Valuable Asset
Though there are hundreds of emerging hustles and opportunities to invest money, people will always need a roof over their head. In other words, the property market will never cease to exist, making real estate investments relevant, and therefore valuable.
Millionaires particularly like to preserve their wealth and pass it down generationally, hence why investing in real estate is great considering that it has a high tangible asset value. This means that unlike paper investments like stocks, bonds or mutual funds, real estate is, well, real!
So, you will always have an investment of physical value, even if the market value falls to zero. And in case there are dips in the market, you can still use real estate as a commercial place or rent it out, even as an Airbnb, giving you the opportunity to make steady returns depending on what the market is like. On average, it takes 10-20 years for a home to double in value, therefore a real estate investment is guaranteed to give long-term passive income through property appreciation.
3. Low Risk
Simply put, it’s one of the safest investment options. Real estate investments aren’t so vulnerable to market fluctuations, which we often see with the stock and crypto markets, making it a relatively low risk investment option.
Crypto and stocks present much volatility and uncertainty. When an investment in those assets is not well-researched, it can instead resemble gambling, diluting your net worth in an instant. Sure, you might say properties can also change in value, but unless you sell at the wrong time or borrow too much, it’s pretty hard to lose money from your real estate investment.
Because of the ability to diversify portfolios, millionaires are able to mitigate their overall risk by spreading their investments across multiple properties, and even regions, giving them the security they need. So, if one area’s market falls, they still rely on income-generating assets in other places.
4. Appreciation Potential
Appreciation, or the increase of home prices over time, is how most millionaires build their wealth in real estate. Though properties sometimes slip in value, it’s historically well-known that the value of real estate over a long-term period almost always goes up.
Factors for a property gaining value include renovation or infrastructural improvements, for example. Plus, land is a limited resource, so demand will always increase, boosting the value, and thus prices, of properties.
Millionaires also benefit from their real estate investments as they work as a hedge against inflation. This is due to the fact that property prices rise during inflationary periods, with appreciation regularly outpacing rates of inflation.
5. More Control
Unlike stocks and bonds where things are out of your control, with real estate, you have full authority the minute you acquire the property. Basically, there is no ‘buy and sit back’ approach like we see with stocks or bonds, where your success is substantially dependent on factors outside of your control. Rather, real estate gives investors more control.
This aspect works well for millionaires, considering they have a high net worth, meaning there are minimal factors beyond their control that could adversely impact their real estate investments.
This control also means that you can greatly influence a property’s value as it’s a tangible asset, meaning you can increase its worth through renovations, or converting it into a property type that fits the demand, it’s all in your hands!
Real Estate Investments In a nutshell…
Long story short, millionaires invest in real estate because it creates wealth. Essentially, investing in real estate is one of the steadiest, safest and most lucrative options as it’s an asset that will always exist.
Additionally, it has huge potential for property appreciation and gives investors full control of their assets. The above reasons act as safe haven for millionaires as they plow money into an asset class that is unparalleled by any other investment.
Nowadays, investing in real estate is accessible and affordable as ever by using real estate investment platforms (REIPs), like SmartCrowd, which allow people to collectively invest in properties and grow their wealth. With an opportunity to get on the fast track, perhaps being a real estate mogul isn’t that far-fetched!
Disclaimer: This blog is intended solely for educational purposes and shouldn’t be treated as financial advice. We suggest you always conduct thorough research, perform your own due diligence and consult with financial advisors to assess any real estate property against your own financial goals.