Do Millionaires Invest in Real Estate? The Wealth-Building Secret (2024)

FAQs

Do Millionaires Invest in Real Estate? The Wealth-Building Secret? ›

Research shows that 90% of millionaires do something specific to create wealth…. invest in real estate. Even though doctors get a late start with tremendous debt, they still have an easier time reaching millionaire status due to a six-figure income.

Overall, real estate investing offers a combination of appreciation, cash flow, and leverage that can lead to significant wealth accumulation over time. It's no wonder that so many millionaires have used real estate as their primary wealth-building strategy.

Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.

Buying a home may be the "American Dream," but it's certainly not a prerequisite for building wealth. Owning a home is expensive, even if you rent it out, and you're never guaranteed a profit. Consider REITs instead, and maximize your investments in the market to build long-term wealth.

Wealthy Californians are showing signs of frustration with the state's affordability crisis. One-percenters are ditching their Los Angeles mansions for homes in cheaper areas. Many wealthy buyers have been driven out by the "mansion tax" in LA, among other tax-related issues.

No matter how much their annual salary may be, most millionaires put their money where it can grow, usually in stocks, bonds and other types of stable investments. Millionaires put their money into places where it can grow, such as mutual funds, stocks and retirement accounts.

One reason commercial properties are considered one of the best types of real estate investments is the potential for higher cash flow. Investors who opt for commercial properties may find they represent higher income potential, longer leases, and lower vacancy rates than other forms of real estate.

But being counted among the highest net worth individuals can be much "easier" in some countries than it is in others. To belong to the 1% in America, your net worth would have to be about $5.8 million or higher, according to the new Wealth Report from real estate company Knight Frank.

Distribution of U.S. millionaires by number of houses owned 2019. As of 2019, a plurality of millionaires in the United States, 43 percent, owned only one house. This compares to 8.5 percent of millionaires who owned five or more properties.

Millionaires are careful with their spending

In fact, 94% of millionaires stick to a budget and live on less than they make. More importantly, almost three-quarters of those millionaires have never carried a credit card balance in their lives!

Is it better to build wealth through real estate or stocks? ›

Returns. As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market. Still, real estate investors could see additional rental income and tax benefits, which push their earnings higher.

The 2% rule is a rule of thumb that determines how much rental income a property should theoretically be able to generate. Following the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% of the purchase price.

It's really common sense, but budgeting, maintaining a consistent savings habit, avoiding or paying off debt, stashing money away in an emergency fund and spending less than you make are all pillars of building wealth. Investing is the more glamorous side, and that's also necessary, of course.

Renting relieves you of paying for the maintenance, insurance, property taxes, and other costs of owning a home. If you're a high-net-worth individual who splits their time across different properties, you probably don't want to spend time dealing with the headaches that come with ownership.

In fact, the average millionaire pays off their house in just 10.2 years.

Know the two hot spots

The rooms buyers most closely inspect (and judge) in a house are the kitchen and master bath. These are the interior spaces where the most value can be added during a sale, so they need to look their best.

The world's wealthiest individuals, with a net worth of at least $100 million, have a unique approach to investing that sets them apart from the average investor. According to a recent article from CNBC, these ultra-high-net-worth individuals are focusing heavily on real estate investments.

California: 44% New York State: 24% Florida: 7% Massachusetts: 6%

Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.