“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.
About Us
Red Oak Development Group is one of the fastest-growing development firms in Austin, Texas. And we’re constantly expanding our portfolio to include more projects to meet the city’s rising need for housing.
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