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How Real Estate Contributes to Accumulating Wealth

Want to know what Elon Musk, Will Smith, Oprah, and even the millionaire next door have in common? They all own real estate! In fact, approximately 90% of millionaires can credit real estate as part of the reason for their fortune. But whether you’re rolling in the dough or managing a bi-weekly paycheck, real estate can be highly effective for building toward your long-term wealth goals.

Stick around because you’re about to learn how owning real estate helps build wealth and ways you can participate in one of the economy’s greatest wealth builders.

Look around. You have all your personal belongings kept safely in this place called “home.” But did you know you can use your “home” to help towards financial security in your future? Homeownership can set you on a new path of wealth-building! Whether using your primary residence or considering investing in an additional property, there are many advantages.

Real Estate is an excellent investment vehicle because:

1. Home values typically go up

2. Benefit from leverage

3. Can provide cash flow

4. Benefit from tax incentives

5. Pass it down for generational wealth

Here’s how you can use these advantages of homeownership.

1. Your Home Value Increases

Real estate is considered an appreciating asset—or something that goes up in value the longer you own it. And the best part is that you often don’t even have to do anything to get the benefit!

There are several ways the value of your home can go up. For example, some neighborhoods benefit from property value increases due to demand. You can also invest money into upgrading your home to make it worth more than when you bought it.

As the old adage goes, everyone needs a place to live, so there’s always a demand for homes.

If you think this value increase is just hypothetical numbers, think again! For example, you can take out equity (a loan based on your property value increase) to put towards more upgrades or perhaps another property. This brings us to our next point about leverage.

2. Access to leverage

Leverage in real estate works in two ways. First, you can leverage the bank’s money to help purchase your home. Alternatively, you can leverage your home to get a loan, such as in our above example about taking out equity. In either case, you can get lots of financial benefits using “other people’s money.”

Taking out a mortgage is using the bank’s money to purchase your home. The good news is that any homeownership financial gains are all yours (minus the difference in your mortgage). The truly real estate savvy can even leverage rental units, so tenants indirectly pay your mortgage for you!

3. Can Provide Cash Flow

“Home” is where we lay our heads at night. But it can also help you make money while you sleep. Billionaire investor Warren Buffet (who owns real estate in his portfolio) is famous for saying, “if you don’t find a way to make money while you sleep, you will work until you die.” Well, you’ve got a lot more living to do, and real estate can help ensure that you won’t be working for the entirety of it.

Homeownership can provide you with cash flow through rentals. Owning a duplex or multi-unit property means you can live in one and use the other spaces to generate cash flow every month. Have a spare bedroom? You can use it to make money through platforms like Airbnb.

4. Benefit from Tax Incentives

Sometimes the biggest wealth builder isn’t the money you earn but the money you keep. And home ownership can save you lots of money when tax season comes around every year.

The economy encourages home ownership by providing tax credits and incentives. For example, if you don’t use the standard deduction when filing your income taxes; you may be able to reduce your taxes more from your property taxes and mortgage interest deductions. Do you have a home-based business? Write off a home office on your taxes. Using alternative energy? Many places offer specified tax breaks. Saving money on your taxes means you have more cash to invest elsewhere. Consult a tax advisor to see how to use your home for tax advantages.

5. Build Generational Wealth

One of the best parts about owning your home is being able to pass it down to your children. Since real estate is one of the best ways to build wealth, it’s also highly effective in securing it for future generations.

Passing down your house to relatives keeps the wealth attained from home ownership in your family. That way, they too can benefit from the increasing value of the home.

Real Estate vs. Stocks?

Is real estate or stocks the better investment? The short answer is both! These are financial vehicles used to grow wealth and have their own benefits. However, growing wealth successfully is a long-term strategy—investing in both real estate and stocks together helps create a diversified portfolio.

Risks of Real Estate

As with any investment, there are risks involved. Most of us experienced the 2008 housing crisis, which drastically impacted home values. However, using home ownership as a long-term investment helps minimize temporary losses.

Other risks in real estate also include leveraging. Owning a home that you can actually afford—i.e., mortgage payments and equity loans—can also aid in reducing risks.

Real estate plays a major role in accumulating wealth. The cash flow and appreciation possibilities can help take your paycheck even further. It’s an effective way to build a solid financial foundation, and everyone has access to its benefits. Thinking about purchasing a home? We’re here to help you decide if it’s a smart financial decision for building long-term wealth. Contact Paycheck to Wealth today for a consultation!

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