Building Wealth through Real Estate: Timeless Truths & Tips
In December 2022, CNBC partnered with Momentive to conduct a poll asking Americans what they thought was the best way to increase their personal wealth. 23% of Americans said that building wealth through real estate was the best method, and 38% agreed that owning rental properties was best for earning a passive income. They are right.
Real estate continues to be one of the safest sectors for investment. With real estate, you can leverage property assets by using their equity for further investments, earn a passive income through rent, enjoy value appreciation, and more. Bottom line: building wealth through real estate is one of the safest investments toward your future.
However, surprisingly, while many Americans agree that building wealth in real estate is the best move, only 12% of Americans invested in real estate last year. If you’re interested in building wealth with real estate but are on the fence, here’s some advice from experts that will encourage you to take the plunge.
Timeless Truths & Tips for Building Wealth in Real Estate
Buy on the fringe and wait. Buy land near a growing city! Buy real estate when other people want to sell. Hold what you buy!
- John Jacob Astor, real estate mogul
John Jacob Astor used real estate investment and development to become one of the wealthiest men in the world. One of the most famous of Astor’s properties is the Astoria Hotel, which eventually became the Waldorf-Astoria Hotel and still stands in New York City. In his time, Astor had a net worth of around $87 million ($2.62 billion in 2023).
John Jacob Astor’s words are still true today. Successfully building wealth through real estate starts with doing your research, finding property in a promising area of development, taking advantage of a buyer’s market, and often holding onto your investment while it appreciates. John Jacob Astor famously died in the sinking of the Titanic, but he passed on a legacy of wealth that continues today, so his words hold weight.
Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.
- Franklin D. Roosevelt, U.S. president
For most people, investment is synonymous with risk. We’ve all heard of stock market crashes, economic bubbles, overextension of finances and assets, recession, depression, etc. However, building wealth with real estate remains one of the safest investments you can make.
Coldwell Banker surveyed 2,000 U.S.-based high-net-worth individuals, and 80% of the respondents agreed that real estate is a safe investment. One of the survey participants further illustrated the point by saying, “Real estate is the best investment one can ever make…I don’t just sell property, I own property too, and it has done nothing but go up. For example, there are certain areas in California where prices never really go down. You just don’t make that kind of return on investment in the stock market.”
Roosevelt brings attention to a truth still acknowledged by many experienced investors today: real estate is one of the safest investments you can make.
Landlords grow rich in their sleep without working, risking, or economizing.
- John Stuart Mill, political economist
Mill’s quote is a bit of an oversimplification (some landlords are very hands-on and work hard to ensure their tenants have a comfortable home). Still, it’s true that building wealth through real estate offers a lot of flexibility when it comes to demand on time and attention.
For example, real estate value increases naturally. On average, real estate appreciates 3% to 5% annually without needing anything more than maintenance. Mark Twain famously said, “Buy land, they’re not making it anymore.” Real estate is a finite resource, so usually, just holding onto a property long-term increases value.
If it’s not your personal home, but a rental property with tenants, plenty of rental management companies will handle all the day-to-day management responsibilities (including finding or replacing tenants). You’ll have to pay a fee to the management company, but if your rental is in high demand, you can set the rent at an amount that will cover both the mortgage and the management fees. You might even make a little extra (and there’s your passive income source)!
If you want to invest in real estate but aren’t interested in hands-on maintenance or renovations or in developing the expertise needed to build a real estate portfolio, we’ve got a solution you’ll like: REITs (Real Estate Investment Trusts). REITs are companies that purchase and operate multiple properties, many publicly traded, so that you can buy shares similar to traditional stock. The award-winning analysis and stock advisory team at Motley Fool says, “The great thing about REITs is that they can be a nice source of stable income. That's because REITs tend to pay higher-than-average dividends due to the way they're structured. Plus, as is the case with stocks, REIT shares have the potential to gain value over time.” There will still be some research required for choosing the best REITs to invest in, but it’s still a relatively hands-off investment.
John Stuart Mill’s words highlight the potential for passive income from building wealth through real estate. Real estate investments offer options for a wide range of individuals with varying capabilities and desires, from hands-on house-flipping DIYers to the buy-it-and-forget-it types.
Start Building Wealth with Real Estate
As old and new wealth experts point out, real estate is one of the safest and most versatile ways to build wealth. If you’re interested in building wealth in real estate, whether it’s your first home or another investment property, Leslie and her team at KPT are ready to help you! Contact KPT today and start your journey toward long-term wealth and security.