Home » Blog » Top 7 Reasons Why 90% of US Millionaires Invest In Real Estate & Why You Should Follow the Lead
“90% of all millionaires become so through owning real estate.” This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago.
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.
Reason #1: Passive Income
One of the biggest reasons why millionaires invest in real estate is for the passive income it provides. With a well-diversified portfolio of properties and investments, you can easily create a stream of passive income that will provide you with financial security for years to come!
Reason #2: Tax Benefits
Another reason millionaires invest in real estate is for the tax benefits. When you invest in real estate, you can deduct several expenses from your taxes, including mortgage interest, property taxes, and more. This can save you a significant amount of money each year!
A real estate investor’s tax benefits could include:
Depreciation is the gradual loss of a property’s value over time due to wear and tear. A real estate investor generating income from a rental property can deduct depreciation expenses from their taxes, reducing their tax liability and taxable income.
No Self-Employment Tax – A self-employed person typically pays the employee and employer’s FICA tax, including medicare and social security. Fortunately, owning a rental property doesn’t classify your income as earned. Because rental income from real estate investments is typically considered passive income and is exempt from self-employment tax, partnerships and syndications are a popular structure for passive real estate investors.
Deductible expenses – As a real estate investor, you can claim tax deductions on various expenses incurred for your portfolio. Typical tax-deductible costs include property insurance, property taxes, management fees, maintenance and repairs, and qualified business expenses.
Reason #3: Leverage
Another reason to invest in real estate is leverage. When you purchase a property, you can put down a small down payment and finance the rest. You can use leverage to finance a portion of the purchase price. This allows you to control larger assets for a smaller investment.
Reason #4: Save Time With A Syndication
You can also leverage other people’s time by passively investing in real estate projects. In this case, the active investor will track the deal and tackle it. And the passive investor, on the flip side, will fund it. Real estate syndications are another great way to invest in real estate passively. Syndications enable you to benefit from other people’s time and money since you’re capitalizing on the efforts of other investors and the property development group to get the deal. This enables you to bypass the project management piece of managing a project, so you can simply gather your profits at the end of the project.
Reason #5: Appreciation
Over time, real estate tends to appreciate in value. This is especially true if you purchase property in an up-and-coming area or make improvements to the property that increase its value. By investing in real estate, you can build equity that will increase in value over time!
Reason #6: Cash Flow
Investing in real estate can also provide you with positive cash flow. This is the money you have left over after paying your expenses, including your mortgage, property taxes, insurance, and more. If you have positive cash flow, you can use that money to reinvest in other properties or other areas!
Reason #7: It’s a Tangible Asset
Real estate is a tangible asset that you can see, touch, and feel, as opposed to stocks and bonds, which are intangibles. Knowing that your investment is tangible might increase your sense of security.
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FAQs
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 90% of millionaires invest in real estate? ›
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.
How do 90% of millionaires make their money? ›
90% of millionaires made their money in Real Estate. I became a millionaire without owning a single property. But I own 6 small businesses that make me $725k/year. Here's why I prefer buying businesses over Real Estate: -- 1) Cash Flow The average rental property in the U.S. cash flows ~$300-$500 (some even less).
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.
Why is real estate key to wealth? ›
Some key benefits include: Cash flow: Rental properties generate regular income that can cover expenses and provide passive cash flow. Appreciation: Over time, real estate values tend to increase, allowing investors to accumulate wealth through property appreciation.
Who said 90% of all millionaires become so through owning 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. The wise young man or wage earner of today invests his money in real estate.” - Andrew Carnegie, billionaire industrialist.
What is the 100 rule in real estate investing? ›
Many real estate investors subscribe to the “100:10:3:1 rule” (or some variation of it): An investor must look at 100 properties to find 10 potential deals that can be profitable. From these 10 potential deals an investor will submit offers on 3.
What are the three things millionaires do not do? ›
The 10 things that millionaires typically avoid spending their money on include credit card debt, lottery tickets, expensive cars, impulse purchases, late fees, designer clothes, groceries and household items, luxury housing, entertainment and leisure, and low-interest savings accounts.
How do most millionaires go broke? ›
According to Entrepreneur, not having a budget is a common way that millionaires end up broke. These soon-not-to-be millionaires don't go over their bank statements or monthly bills to make sure that there aren't any unauthorized transactions or that they weren't overcharged.
Why do millionaires buy real estate? ›
Federal tax benefits
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.
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.
What is the foremost reason people invest in property? ›
Final Answer: The foremost reason people invest in property is to make money through capital appreciation and rental income.
Why is all cash good in real estate? ›
However, accepting an all-cash offer can speed up the process significantly, since you don't have to wait on lender underwriting and approval. Plus, all-cash offers are less likely to fall through, since your buyer isn't relying on a loan application that could be denied.
What makes more millionaires stocks or real estate? ›
It's harder to get rich off stocks than it is to get rich off real estate. The main reason why is due to the absolute amount of money you need to risk to get rich in stocks. Even if your $5,000 stock investment goes up 50%, that's only $2,500.
Why is real estate often a great investment? ›
On its own, real estate offers cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. Real estate can also enhance a portfolio by lowering volatility through diversification, whether you invest in physical properties or REITs. Internal Revenue Service.
What percentage of millionaires are millionaires because of real estate? ›
“90% of all millionaires become so through owning real estate.” This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago. Some of the most successful entrepreneurs in the world have built their wealth through 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 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.
