Retire Wealthy In Real Estate
Retire Wealthy In Real Estate
Consumers: How to Retire Wealthy in Real Estate?
What percentage of millionaires do you think made it through real estate?
50%? Maybe 60%? Neither is correct.
90% of millionaires came through real estate, that’s right 90%.
This is no exaggeration, search the web and see it for yourself. You will also find a ton of information on how to get started in real estate investment and join them for the journey. Be careful not to fall for the scammers.
This article is about shedding light on some real estate facts, economic benefits and help you open your eyes to the opportunities around you in the real estate space.
Let’s start with some facts and figures.
- Real Estate is the only vehicle in which an ordinary person can achieve extraordinary financial success. As a matter of fact, my belief in this statement is the only reason I built this platform. An ordinary person is someone with an ordinary (average) annual income, average education (high school or a 2-year college degree) with an average intelligence. You don’t have to be a rocket scientist or be born in millionaire parents to make millions in real estate.
- A book published in 1996 by William Danko Ph.D. and Thomas Stanly Ph.D., The Millionaire Next Door, quoted the average income for the American millionaires to be just under $70,000 (not including the celebrities). That’s right, under $70k. That’s right, you don’t have to be born to millionaire parents or have millionaire uncle to make millions, although both would help.
Let’s me show some real numbers on a real property, my own very first property, 8495 E Amberwood, Anaheim Hills CA.
I bought it in 1990 for $214,000. I lived in it through 2001, rented it out for a couple of years and sold it in 2003 for $400,000. In 2019 that property was sold again to $640,000. In today’s market, this property would sell no less than $750,000. From $214k to $750k, $536,000 gain in equity in 30 years. If I were to search the MLS, I will find thousands of examples like this or even better than this and not only in So Cal, but all over the country.
Here is a simple math. 3 properties in 30 years, would have afforded the owner in excess of $1.5M in equity and a rental income of close to $10,000 per month on 3 free and clear properties, with all mortgages paid off by tenants. I would consider this acceptably wealthy for an ordinary person. The good news is that once people get started in buying and investing in real estate and learn its economic benefits, many of them propel to much bigger and higher financial accomplishments.
Below are the 4 major economic benefits of investing in real estate.
- Equity Appreciation: The difference in what is owed on the property and its value is called equity. As it is evident from the example I shared above, properties grow in value with time, more in areas like So Cal than in other areas. In fact, the National Association of Realtors (NAR) has reported that real estate nationwide has averaged more than 6.74 percent appreciation annually during the past 50 years. That growth in equity is very attractive to investors as it takes little to no work to enjoy it after the property is purchased.
- Leverage: Leverage in real estate is referred to a situation when a buyer or an investor uses the mortgage to his/her benefits. For example, if one buys a property for $500,000, instead of paying cash for it, only puts 20% down, $100,000 and finances the balance of $400,000, he enjoys the growth in equity on the entire value of the property without investing the full amount of $500,000. The mortgage may cost him at the interest rate of 3% to 4% (based today’s market for qualified individuals), but the long-term value appreciation outweighs the cost of the mortgage.
- Rental Income / Cashflow: In addition to equity growth, residential properties may be used for rental income by renting them out to tenants. If purchased wisely, the rental income of the property covers the monthly mortgage, tax and insurance expenses, affording the owner no out-of-pocket monthly expenses. This principal reduction within the mortgage is an ongoing tax-free benefit in addition to appreciation. With time, the rental value of the property goes up, yielding in potential monthly cashflow.
- Tax Benefits: Rental properties lose money on paper. But with the power of depreciation, the fact that you get to deduct the mortgage interest your renter is essentially paying for you and the additional deductions you can take for travel, property taxes, HOA fees, repairs, maintenance, home office, supplies, cell phone, etc., the tax benefits add up very quickly!
Purchasing and investing in real estate is only one way to retire wealthy. Another way to use real estate, as a means to wealthy retirement, is starting a career in real estate. Real state is a vast field and career opportunities in it are enormous. Let’s just look at the residential real estate sales in So Cal. To establish a career with a decent income ($100,000 / yr.) as an employee working for a corporate America will easily demand 50 + hours a week of hard work. The right person devoting the same amount of time and commitment, working in the right real estate environment, can easily make 3 to 4 times as much after 3 to 4 years of experience.
To demonstrate it numerically, let’s consider Anaheim Hills in So Cal, where I am based in.
The average homes sell around $1,000,000. The average sales commission at the rate of 2.5% amounts to $25,000. To make $300,000, a realtor must sell 12 house a year, one a month (12 x $25,000). I know plenty of realtors around me, people with minimum academic education (high school degree), people with English as their second language, people new to the American culture, people fairly new to real estate industry and alike, making this kind of money and more. Making this kind of money makes investment in real estate much more affordable and easier. The beauty and the advantage of having a career in real estate is the exposure to most lucrative opportunities before they hit the market.
Whether you invest or start a career in real estate, for the people who are willing to put the time and energy necessary for success, can enjoy a wealthy retirement as the “bare minimum.” You can only go up from there.
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