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Why Real Estate Builds Wealth More Consistently Than Other Asset Classes

Exterior View of High End Condos in the CityEvery time you ask seasoned investors and investment managers what their top recommended investments are, one type of asset always makes the list. Regardless of whom you talk to and the state of the nations’ economy, real estate is always one of the first three investments they will recommend.

Real estate investing is so established that some of the other investment options you will hear about, such as commodities, will also depend on real estate to some extent. Furthermore, several investment vehicles also make real estate investing a major part of their investment strategy. For instance, IRAs commonly invest in real estate.

Real estate investment ranks at the very top when comparing the wealth-building potential of different asset classes. From an investment point of view, there are only two kinds of assets people buy with their money. They can put money into wasting assets or invest it in productive assets.

Productive assets generate cash flow and profit. As an example, stocks are productive assets because they pay dividends and increase in value. Real estate is also a productive asset; it earns rental income and appreciates in value. But real estate supersedes stocks because stocks are self-liquidating, while a property is self-sustaining. (To learn more about real investing and rental terms click here.)

Furthermore, stocks generate income on a quarterly, semi-annual, or annual basis where real estate produces monthly income. For anyone looking for a wealth-building strategy that survives economic turmoil and endures across multiple generations, real estate is the key. Wealth founded on property ownership will last hundreds of years.

Real Estate Investor Viewing Stock Data on a Mobile Device

This is why the world’s richest people and the savviest investors have a substantial part of their money held in properties. Here are the reasons why they do it and why you should be doing the same thing too.

But WHY does real estate build wealth better?

  • Cash flow from rental income

With most assets, investors buy hoping the asset’s value will increase so that they can make a profit when they sell. This is not the case with real estate; without selling their properties, investors can earn enough income from it to meet their daily needs.

  • Value appreciation

In addition to producing monthly income, real estate will also increase in value. As a rule, the price of property increases over time. Even if there are short-term dips in value, in the long run, the property becomes more valuable.

  • Access to leverage

Property is probably the only major asset class you can buy with other people’s money. By paying 20% or less of the value of a property you can control it and own 100% of the income it generates.

  • Real estate pays for itself

When you buy property using leverage, you don’t have to put any more money into the asset beyond the initial down payment. The rent paid by tenants provides enough money to repay the loan, plus other costs.

  • Increased earnings through depreciation

In addition to rental income, you can earn income from a rental property through depreciation. Each year the property loses some of its value (on paper), allowing you to pay less and less tax as the years go by.

  • Improved income with tax deductions

You can increase the income from a rental property by making legitimate tax deductions on some of the operational expenses of the property. This decreases your tax burden and increases your earnings.

  • Forced equity

By making improvements to a property, you can push its value upwards; this is known as forced equity. Real estate is the only investment where you can forcibly improve an asset’s value, rather than wait on the market.

  • Bigger earnings through inflation

Property values and rents are bound to go up as a result of inflation; this is inevitable. However, while these go up, most of the big expenses on the property stay the same; mortgage or taxes. Inflation actually makes the property more valuable.

Calculator, Notebook, Coins, and Hundred Dollar Bills Displayed Across a Countertop

Unlocking real estate’s potential as a strategy for building enduring wealth

The biggest benefit of investing in properties is the chance you have to build wealth that lasts beyond one generation and can be transmitted to your children and grandchildren. Property can retain its quality and preserve its value for descendants that follow one hundred years after you.

That’s because land is a tangible asset that will not be removed. It is also a limited resource that people will always need. The nature of land and houses is they are always present and always in demand. Few investments offer this level of stability.

However, to become an instrument for securing the lives of future generations, real estate needs first-rate management. You must install a management system for your property investments that let them perform beyond the limited expertise of you or your offspring and the conditions in the economy.

Follow the example of the rich and powerful; put your property investments under the care of property managers who know how to maximize the potential of the investments. That way the assets will be there for you and your family but they will be protected from errors of judgment on you or your children’s part.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.