Why Millionaires say You Should Invest in Real Estate and How to Get Started

by | Feb 10, 2020 | Real Estate

If you are thinking about buying, Millionaires would approve. Some of the wealthiest people in America have shared their thoughts on real estate as an investment. Check out what Barbara Corcoran, Bethenny Frankel, Dottie Herman, and others think about owning property.

“Most millionaires I know made more money from owning real estate than any other investment. Real estate consistently increases in value over time and outperforms other investments. Plus, it isn’t as vulnerable to short-term fluctuations as the stock market. You get a tangible, usable asset, whether you’re renting out an apartment or commercial building for income or buying a home. And there can also be tax benefits for investment properties.”—Peter Hernandez, president of the Western Region at Douglas Elliman, founder, and president of Teles Properties

“Real estate is a bankable asset, so you can always leverage it. It also doesn’t tie up a lot of cash. You can put down as little as 10% and use banks’ money to grow your investment. With such low-interest rates, that’s like free money. Unlike the stock market, where many factors are out of your control, your investment can’t disappear overnight. You can also build your wealth with excellent return rates and tax advantages.” —Dottie Herman, CEO of Douglas Elliman, a real estate brokerage empire with more than $27 billion in annual sales.

Andrew Carnegie said that 90 percent of millionaires created their wealth by investing in real estate, which is why they firmly believe that buying is better than renting – for multiple reasons.  The number one reason? Buying or investing grows wealth and can generate income when renting simply does not. When buying any type of property, the return will likely always be greater because real estate is consistently increasing. Plus, the real estate of all sorts – homes, other residential and business spaces, land – is always in need.

Currently, the market continues to show great demand from all sorts of buyers. With demand comes supply. Although in 2020 it is expected to see the inventory shortage persist, the housing market overall has never declined over time. There will always be demand, so investment opportunities will continue to exist to make supply available.

When talking about home value appreciation, the outlook tends to hold positive favor when making a return on a home. Last year, home-price appreciation dropped to a 3.6 percent average, from a 5.8 percent average in 2018, according to CoreLogic. It’s predicted to grow again to a 4.6 percent average this year. CoreLogic also mentions that the Home Price Index (HPI) has increased on a year-to-year basis every month for 8 years straight as of this month. Since being at its lowest in March of 2011, it has seen a 63 percent rise.

Affordability continues to be an issue, especially with entry-level homes, which are in the highest demand. On the other side, since mortgage rates have been low, buyers have had more opportunities to enter the market. For sellers, home values continue to rise meaning their wealth gain also rises:

In the lower tier, homes saw the largest increase, with value rising 5.9% annually in December 2019. Prices in the low-to-middle price tier rose 5.2%, the middle-to-moderate-price tier increased 4.4%, and the homes in the highest tier witnessed values rise 3.7%. (CoreLogic)

The Housing Market in the U.S. also saw a huge gain. Over this last decade, the total value of nationwide homes increased to 51 percent, which equals to $11.3 trillion. This past year, the total value of all residential homes in the U.S. grew 3.4 percent or to about $1.1 trillion. And the total value of the U.S. housing stock is up to $33.6 trillion. That dollar amount almost equals the combined gross domestic product (GDP) of 2018 for two of the largest economies. The GDP measures economic output. In 2018, the United States was at $20.5 trillion while China was at 13.6 trillion. This can be an important factor when taking a wider look at and understanding the market when considering the long-term commitment to owning property.

Ready for tips on where to begin? Below is a list of the best ways to start investing in real estate.

This one may sound like a joke, but if you plan on buying a home, you are investing in real estate! Like Barbara Corcoran shares, sometimes buying is a must and it’s a great step to get you into the investing sector.

“Buying real estate has made me rich — mostly through necessity, not by design. I bought my first itty-bitty studio after scraping together a few bucks because I needed to live somewhere anyway. A few years later, the studio doubled in value, giving me enough cash to plunk down 50% on a one-bedroom apartment. That soon rolled into a two-bedroom, then a three-bedroom, and finally landed me in my 10-room penthouse on Fifth Avenue in New York City. Buying that tiny studio was the most important decision I made because it got me in the game.”—Barbara Corcoran, founder of The Corcoran Group, podcast host of “Business Unusual,” judge on “Shark Tank”

Once you are in a home, general upkeep or home improvements, and timely payments on the mortgage will set you up for success. Over time, the home value has the potential to rise, you have the option to sell, and you can make a significant gain of income on the original sale price. If you go in with the mindset that it’s a long-term investment, your home can turn into a valuable asset. Plus, it could launch you into buying a second home or other properties to help build additional revenue.

What’s nice about a renting-to-own option is that a percentage of the monthly rent payments will go towards your down payment of the mortgage. This way, you’re not throwing money away but instead using it toward the investment of the property when it’s officially time to buy. Renting to own can be a great option if you are ready for a long-term commitment, but especially if your financial situation isn’t ready for another monthly bill as big as a mortgage payment.

Are you confident in your home and financially ready to own a secondary property? Buying a vacation or rental property could be a great investment. They both vary and come with a few important considerations. A rental property provides you the opportunity to have multiple long-term tenants to help with costs. Whether you rent out a multi-unit building or individual rooms within a property, the tenants can pay a reasonable price that will go towards your mortgage or any other expenses. In turn, once the mortgage is paid off, the generated income can then go back into the property to help raise the value, it can go towards another property investment, or it can go right back into your pocket.

With vacation rentals, you’ll be dealing with a shorter turn around for guests who are only visiting. These properties tend to be a bit pricier since they will be located in popular vacation spots. However, depending on the type of property you buy, the condition, and the features and amenities of the property, you generally can raise your charging price more so than with a residential rental property. Definitely do your due diligence and research with this one. If you go about it the right way, you could potentially have consistent bookings that will bring in year-round revenue.

Note – if you’re not interested in the management side of things and are able to do it financially, consider hiring a property manager or someone who can look after your properties to help with tenants and any maintenance issues.

Buying and flipping a property may be one of the most time consuming and biggest investments upfront, but it can potentially bring you the largest return, faster. That’s considering everything goes smoothly. Fixing up a home or property is more of a ‘hands-on’ task and requires some industry knowledge. If you are comfortable buying a property, handling the funds to fix-er-up, and then selling it for profit, you may find a knack for a high-income producing hobby. If you simply have the funds to put towards the project and can hire out teams to help do the work, you can use any earned income to continue putting into multiple fixer-upper properties.

Are you interested in investing in real estate? These are just a few ideas to help you get started. My team and I have many options to set you up for realty and financial success. Real estate may be a long-term investment, but the reward is worth the commitment – especially when it comes to your personal home. Reach out and let’s talk about how I can help!

This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc. with information from resources like CNBC, Zillow, and TheStreet.

Call Tim (858) 663-0911

The #1 Luxury Real Estate Specialist in Rancho Santa Fe & North County San Diego For Berkshire Hathaway

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