Who wants to be average? I don’t. If you’re a real estate investor and/or landlord, you probably don’t either.
Even homeowners are so far ahead of renters’ wealth that it’s shocking. According to the last Federal Reserve survey (conducted every three years), the average U.S. homeowner has a net worth 36 times higher than the average renter: the median net worth for homeowners was $194,500, compared to $5,400 for renters.
Thirty-six times as wealthy, just based on whether they own any real estate!
The projected results for the 2016 survey? A difference of 45 times the value, at $225,000 compared to $5,000.
And that’s just homeowners. Active real estate investors are in another league altogether.
Last year, only 13.2% of Americans owned residential rental properties. Want to guess how much higher their average net worth was than other Americans? If your guess was $316,300, you’re either well-informed or you cheated and skipped ahead (source: the Federal Reserve report above).
Those real estate investors, who are doing so much better financially than everyone else, know something that others don’t. They know that there are literally dozens of ways to make money from investing in real estate.
The possibilities go far beyond simply signing a long-term lease agreement, or buying a fixer-upper to renovate and sell. Investors can live for free by buying a multi-unit property, moving into one unit and leasing out the others. Or using them as vacation rentals on Airbnb or HomeAway.
They can rent out urban garden plots in their piece of land in the city, or lease out parking spaces. They can install solar panels and sell electricity back to the power utility. They can create a bed and breakfast and rent out rooms for the night. They can subdivide large old buildings into apartments and lease them out.
Real estate investors know that they can earn money from appreciation, as the value goes up and the principal balance goes down while tenants pay down the mortgage. They know that they can save money on taxes, through depreciation, travel and home office deductions, mortgage interest deductions and more. They know they can defer paying capital gains taxes through techniques such as 1031 exchanges.
But ultimately what real estate investors know is that there is an asymmetry between the risks and rewards of investing in real estate.
“But what if they love their job?”, you ask? Some do, but the average person doesn’t: 70% of Americans feel disengaged from their jobs.
Back on the other end of the spectrum, full-time real estate investors can create whatever life they want for themselves. Not everyone likes the term “lifestyle design”, but there is something to be said for setting your own hours, taking as much or as little vacation time as you want, living exactly where you want.
In being self-employed, real estate investors are creating value directly for themselves rather than creating value for someone else.
Granted, being an entrepreneur is not easy. Intentionally creating the exact life you want takes an incredible amount of vision, work, tenacity, risk and yes usually some saved money. It takes courage to quit your job, leave a steady paycheck behind. It is a leap into the void.
Is it worth it? Just ask the real estate investors whose net worth is $316,300 higher than people without real estate investments. Or take a quick look at millionaires worldwide, and you’ll see just how many of them come from the real estate industry.
The only person I want to use the word “normal” to describe me is my doctor, talking about my health. But my financial advisor, talking about my wealth? “Normal” and “average” aren’t the words I want to hear.
Set some larger goals, live a life less ordinary, and start down the road from “average” to “wealthy.”♦
How has real estate lifted your life out from the ordinary? Or is the struggle ongoing? Everybody loves a good story, tell us yours!