Why Real Estate is Still the Smartest Investment | BHSNOW Blog (2024)

FAQs

Why 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.

The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage. Real estate investment trusts (REITs) offer a way to invest in real estate without having to own, operate, or finance properties.

If your credit score is strong, your employment is stable and you have enough savings to cover a down payment and closing costs, buying now might still be smart. If your personal finances are not ideal at the moment, or if home values in your area are on the decline, it might be better to wait.

Negative Cash Flows

High vacancy rates. Costly maintenance. High financing costs on loans. Not charging enough rent.

According to this rule, after purchasing and rehabbing the property, the monthly rent should be at least 1% of the total purchase price, including the cost of repairs. This guideline helps ensure that the rental income covers the mortgage payment and operating expenses, leading to positive cash flow.

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.

Illiquidity: Real estate is not a liquid investment, and selling a property can take time. You may not have access to your funds quickly in case of an emergency. This lack of liquidity can be a disadvantage compared to more liquid investments like stocks or bonds.

While home prices rise and fall, they generally don't experience the wide short-term fluctuations often seen in the stock market. Unless you're flipping properties, most real estate investing has longer time horizons which can help minimize short-term volatility.

The combination of high mortgage rates, steep home prices and low inventory levels are lining up to make the 2024 housing market a challenging one for both buyers and sellers. But rates have cooled a bit — if that continues throughout the year, as some experts predict, then market activity should heat up in response.

Will 2024 be a better time to buy a house? ›

Mortgage rates are expected to come down in 2024, and inventory and home sales are likely to increase. Homebuyers and sellers can also expect prices to continue to rise, albeit at a slower clip than the past couple of years.

On Friday, the National Association of Realtors reported that 2023 saw the smallest number of home sales in nearly 30 years. Last year was rough for homebuyers and realtors as a trifecta of forces made it harder than ever to buy a place to live. Or, at least the hardest in nearly three decades.

Unfortunately, many property investors fail to reach their goals because they do not know when to buy and when to sell. Too often, real estate investors will invest in a property and become so attached to it that they will refuse to walk away and accept losses.

Home prices have doubled in the last decade, with much of that growth happening in just the last four years. By one measure, housing affordability has fallen to its lowest level since the 1980s. And high interest rates have exacerbated the problem, ballooning monthly mortgage payments.

According to the S&P 500 Index, the average annual return on investment for residential real estate in the United States is 10.6 percent, so anything above that can be considered better than average. Commercial real estate averages a slightly lower ROI of 9.5 percent, while REITs average a slightly higher 11.3 percent.

The real estate myth is the claim that “90% of millionaires made their wealth through real estate.” Real estate gurus often tout this as a straightforward and accessible path to wealth. However, this claim is not entirely accurate.

“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.

“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.

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.