7 Reasons Why 90% of Millionaires Are Invested in Real Estate (2024)

cashflow down payment finance goddess house investor landlord millionaire opm opt real estate rent sale women Apr 26, 2021

7 Reasons Why 90% of Millionaires Are Invested in Real Estate (1)

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:

1. Passive Cash Flow

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.

2. Appreciation

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.

3. Federal tax benefits

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.

4. Leverage:

The ability to leverage is one of the greatest benefits of real estate investment. Millionairesunderstand 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

  • You can leverage with money.

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.

  • You can leverage with time.

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.

  • You can leverage other people’s experience.

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.

  • You can leverage with the property itself.

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!).

5. Principle Pay Down

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.

6. Re-finance

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.

7. Real Estate is a “Feel-Good” Business

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:

  • -make a property and a community better than we found it
  • -only engage in win-win transactions
  • -ensure that everyone touched by our deals is uplifted and benefits from their involvement.

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?

7 Reasons Why 90% of Millionaires Are Invested in Real Estate (2024)

FAQs

7 Reasons Why 90% of Millionaires Are Invested in Real Estate? ›

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.

What creates 90% of millionaires? ›

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.

Why does real estate make most millionaires? ›

Overall, real estate investing offers a combination of appreciation, cash flow, and leverage that can lead to significant wealth accumulation over time. It's no wonder that so many millionaires have used real estate as their primary wealth-building strategy.

Why do wealthy people buy real estate? ›

Advantages of Investing in Real Estate

With each dollar invested in real estate, you can generate passive cash flow, use the bank's money to increase your returns, increase your equity by paying down the mortgage, earn appreciation, and reap tax benefits.

Why are so many people investing in real estate? ›

On its own, real estate offers many benefits, such as cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. There are many other ways why real estate is such a good investment, so if you are interested in doing so, start doing your research now.

What wealth puts you in the top 1%? ›

In the U.S., it may take you $5.81 million to be in the top 1%, but it takes a minimum net worth of $30 million to be considered among the ultra-high net worth crowd. As of the end of 2023, this ultra-high net worth population is on the rise, reaching 626,000 globally, up from just over 600,000 a year earlier.

What do most millionaires invest in? ›

No matter how much their annual salary may be, most millionaires put their money where it can grow, usually in stocks, bonds and other types of stable investments. Millionaires put their money into places where it can grow, such as mutual funds, stocks and retirement accounts.

What percent of millionaires are because of real estate? ›

Some of the most successful entrepreneurs in the world have built their wealth through real estate. In fact, it's estimated that 90% of all millionaires invest in some form of real estate. There are several reasons for this, but in today's article, we'll share seven reasons why millionaires invest in real estate.

Why real estate is the best way to get rich? ›

The most common way to make money in real estate is through appreciation, an increase in the property's value. Location, development, and improvements determine real estate appreciation. Real estate investors commonly rely on income from rents for residential and commercial properties.

Is real estate the only way to build wealth? ›

Buying a home may be the "American Dream," but it's certainly not a prerequisite for building wealth. Owning a home is expensive, even if you rent it out, and you're never guaranteed a profit. Consider REITs instead, and maximize your investments in the market to build long-term wealth.

Why are the rich renting instead of buying? ›

Renting relieves you of paying for the maintenance, insurance, property taxes, and other costs of owning a home. If you're a high-net-worth individual who splits their time across different properties, you probably don't want to spend time dealing with the headaches that come with ownership.

Do millionaires pay off their house? ›

In fact, the average millionaire pays off their house in just 10.2 years.

Why do rich people buy houses under LLC? ›

The two main advantages when buying a house with an LLC are limited liability protection and legal protection for your assets. These protections mean that you cannot be held personally liable for anything that happens at the property.

Why do people invest in real estate instead of stocks? ›

Real estate ownership is generally considered a hedge against inflation, as home values and rents typically increase with inflation. There can be tax advantages to property ownership. Homeowners may qualify for a tax deduction for mortgage interest paid on up to the first $750,000 in mortgage debt.

What is the biggest issue with investing in real estate? ›

Liquidity risk

Investors consider real estate investments illiquid because they cannot easily convert them into cash. Selling a property can take months or even years, depending on market conditions. This lack of liquidity can be a problem if you need quick access to your capital or want to diversify your investments.

Where do millionaires keep their money? ›

Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.

What is 90 percent of all millionaires? ›

Ninety percent of all millionaires become so through owing real estate.

Is it true that 90% of millionaires make over $100000 a year? ›

Ninety-three percent of millionaires said they got their wealth because they worked hard, not because they had big salaries. Only 31% averaged $100,000 a year over the course of their career, and one-third never made six figures in any single working year of their career.

What is the most common way millionaires are made? ›

The majority of millionaires are self-made and have accumulated their wealth through a combination of hard work, education and investing. Tim Corley, a wealth expert and author, has spent years interviewing hundreds of millionaires to learn their habits and how they think.

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