Did you know that the vast majority of Forbes’ billionaires made their money in real estate or are maintaining and building their wealth by leveraging the power of real estate? Warren Buffett, Richard Branson, and Larry Ellison all invested in land. Real estate has been a key player in creating more and more wealth for some of the richest in the world, but why and how does this happen? While others are working so hard and drowning amongst the smallest of bills, others are living lavishly. Read on to find out how the rich are getting richer through the world of real estate.
Large Tax Benefits
The media hype was massive over the current president’s almost billion dollar tax break. Trump isn’t the only one benefiting from tax laws. If you are the owner of a real estate business or invest in properties, you can benefit as well. The biggest earners have used certain tax advantages to earn millions, and still pay less in taxes than those in the $40,000 earners’ bracket.
Tax-free growth is a way that real estate investors can leverage their wealth into greater prosperity. Large tax breaks allow you to keep more of your money and pay less to uncle sam. 1031 exchanges— as well as self-directed IRAs— give investors the opportunity to make money on a tax-deferred or tax-free rate.
Potential In Compounding
The richest individuals understand the power of compounding. They put their money into real estate and watch it work for them. It can build returns on top of returns on top of more returns. Did you realize that by just investing $5,000, you can turn that into millions? It just takes time and the use of compound interest. Here is a free compound interest calculator. See how it can work for you!
The Power Of Passive Income
When you earn income from real estate investing, this is considered “passive income.” That means that your money is working for you, and you are not working for your money. In other words, you make money in your sleep. For example, if you have a 50 unit apartment building, you have 50 households working forty to one-hundred hour weeks to create more wealth for you. This will happen even if you don’t get out of bed. Another benefit of passive income is that it is often taxed at a lower rate than the income you earn from salaried or hourly employment.
One fantastic advantage of real estate investing is that it is a hard asset. You can use property to protect and “hold onto” your wealth. If you have stocks, those can be entirely erased. When The 2008 collapse happened, many Americans lost their life savings due to this. Real estate investing means that the basis and land will always be there, and that’s where the value is found. Sometimes with wealth, it’s not so much about getting lucky, it’s about keeping the returns that you make.
Protect Against Inflation
The general trend is that real estate (depending on asset class) doubles in value every ten years ahead of inflation. Cash is an example that can be devalued. Banks kill you with fees and putting dollars under your mattress won’t cause the amount to increase. Just look at how much one dollar was worth twenty years ago versus how much it is worth now.
Real estate does more than two things, but two things I want to mention now is its ability to appreciate in value and throw off cash dividends. The rich have a “nest-egg” that they save. Wealthy individuals don’t have to dig into their savings to live but instead, live on the profits and yields from dividends. It’s about reinvesting.