SS28: How Do You Create Wealth Through Real Estate?

Wealth creation is one of the main benefits of investing in real estate. Charles shares his thoughts on generating wealth and why 90% of the world’s millionaires have been created by investing in real estate.

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Talking Points:

It is no secret that over the last two centuries, about 90% of the world’s millionaires have been created by investing in real estate.

But simply knowing is not enough, what concrete action do you need to take in order to begin the wealth-building process? This is exactly what we are going to be showing you today, let’s jump right in:

First, here are some things to keep in mind which will not only help you create your property wealth but also keep it, which is just as important.

  • Invest for the long-term. With very few exceptions to this rule such as renovation flips, which we will cover a bit later. Fortunes take time to build – the median age of a millionaire is around 59 years old.
  • Re-invest the majority of your earnings. If your property investments are not your sole or primary sources of income, then re-invest at least 50% of your real estate investment income which will help compound wealth even faster.
  • Minimize leverage/debt. While this may make generating wealth take a good while longer (invest for the long-term) it is absolutely crucial to protecting your principal, which is one of the staples of sound investing.

With this in mind, here are some tried and true ways to create for yourself through real estate:

Home Ownership
The median U.S. household has approx. 68% of its wealth is tied up in its primary residence. Owning your own home for multiple decades can create a humble amount of personal wealth if residential real estate compounds by 5-6% per year, as has been the norm.

Investing in a REIT
Public REITs own more than 516,000 properties across the U.S. as of year-end 2019. Worth a combined $2.5 trillion in gross real estate assets.

It is far and away the easiest, lowest-cost way of investing in real estate available today.

Rental Property
In 2020, there were approximately 43 million housing units occupied by renters in the US. The overwhelming majority is owned by small landlords who own one or two properties. This will increase your wealth in two ways: property price appreciation and passive rental income. If you can purchase the property out of foreclosure and thereby secure a below-median purchase price, all the better.

Renovate to Flip
This is the process by which you purchase a property that needs a little or a lot of love, fix it up, and either rent or more commonly sell it for a price above that which you originally paid some 3-12 months earlier. This endeavor takes much more time and hands-on activity, so it’s not recommended for passive investors.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how do you create wealth through real estate. So over the last two centuries, about 90% of the world’s millionaires have been created by investing in real estate, but simply knowing that’s not enough. So today I want to go through the wealth building process and how you can start. But first off, here’s a few things to keep in mind, which will not only help you create your property wealth, but also keep it. Number one is invest for the longterm. Number two, isn’t reinvest the majority of your earnings in number three, minimize leverage in debt. So invest for longterm fortunes. Take time to build the median. Age of a millionaire is around 59 years old when you’re buying rentals. It’s important to note that rentals that you bought 15 years ago are going to be less volatile and more consistent than rentals you’re buying today.

Charles:
Next reinvesting, the majority of your earnings, if your property or investments are not your sole or primary sources of income reinvest at least 50% of your real estate income, which will help you compound your wealth even faster, which is great advice. Even if you’re not investing in real estate in number three is minimized leveraging debt. And this people get really touchy when you’re talking about that and leverage because everybody has their own plan with leverage and debt and people have their own risk tolerance. Let’s say between how much leverage and how much debt that they’re comfortable with. My thinking is with smaller properties that you’re buying small multifamily properties, small rentals is to get long-term debt and pay it down when you’re getting into larger multi-family and larger rentals commercial properties. So 30, 40, 50 units. Plus this is a much different asset class, because way, if you have 50 units paying you rent every month, right?

Charles:
50 sources of income, it’s going to be less, a lot less volatile than just having one, two or three people paying rent. Okay, you can have 3, 4, 5 people not pay rent with that large complex and still pay all your bills and in cashflow without really a problem. So that’s why in that sense, you’re not that you want to over leverage, but that some investors will refinance those every five or 10 years and pull some money out because they can reinvest that and deploy that into different assets. So starting off with one of the first routes to building wealth is what most people know is home ownership. The medium us household has approximately 68% of its wealth tied up in his primary residence. Owning your home for multiple decades can create a humble amount of personal wealth. If residential real estate continues to compound at five to 6% per year, the downfall here is that you cannot get paid cashflow from your house.

Charles:
So the thing though is that you have all your money tied up in an asset, and it’s just sitting there earning zero return. And not that it’s bad to have a paid for primary residence, but this shouldn’t be your ultimate goal. If you really want to build wealth and cashflow through real estate, next is investing into a REIT, a real estate investment trusts. We’ve spoken about these before public REITs own more than a half million properties across the us as of the year end of 2019 and worth a combined two and a half trillion dollars in gross real estate assets. It’s far and away. The easiest, lowest cost of investing into real estate available today. Next is rental property, which is usually what we’re talking about on the show. And in 2020, there were approximately 43 million housing units occupied by renters in the U S with the overwhelming majority owned by small landlords who owned one or two properties.

Charles:
This will increase your wealth in two ways, property, price, appreciation, and passive rental income. That is, those are very important to know. And if you’re able to source these properties for less than retail, it’s going to allow you to, to generate even more income and build your wealth even faster. So this is what we do here is rental properties. We work through syndications that we do with our investors, and this is what we found to be the best way of generating income. What I didn’t know here when I was talking about it is that it’s also taxed very favorably, right? Because rental income with depreciation, we get fantastic tax benefits here in the United States for buying rental property and renting it out next is renovating to flip. And this is the process by which you purchase a property that needs little or a lot love fixing up, and either renting it or more commonly selling it for a price above which you originally paid.

Charles:
And usually three to six months, sometimes 12 months earlier, this in Denver takes much more time hands-on activity. It’s taxed at a very high rate, and it’s not recommended for passive investors. If this is your real goal is passive income. This probably isn’t the route for you. Not saying not the flip houses, but make sure that when you’re flipping houses and you’ve made profit, that you’re actually investing it into passive generating wealth generating real estate. So I hope you enjoy this episode. Please remember to rate review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar LLC exclusively.

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