Here’s an open secret: Most people who are fairly wealthy have created their wealth by investing in real estate over the years.
If real estate hasn’t been used to create wealth for them, it has definitely been used as a place to store their wealth.
Now I understand that is an over-simplification & not always the case, but for the most part, this simple technique has definitely withstood the test of time. Even established financial blogs such as Financial Samurai has written an extremely detailed post on the benefits of real estate & how to use them to benefit you.
However, when I talk about real estate, I am not necessarily talking about your primary residence. Yes, your primary residence is likely to increase in value over time, but since you live in it, and since you have to spend money from your pocket to maintain it, I wouldn’t use that piece of property in the calculation of your net worth. Since there there is an expense related to maintaining a primary residence and since there is no income produced, your primary residence is a liability and NOT an asset.
You might cringe hearing me call your primary investment a liability but it really is true.
That being said, generally speaking, if someone is financially adept, they will be more prone to investing in multiple real estate avenues (after using your due diligence) can mean that you retire 10-30 years ahead of time. I am sure everyone knows about McDonalds as a multi-national fast food company.
Ray Kroc, the owner of McDonalds once famously asked the attendees in a conference what his business was all about & someone helpfully chimed in: “We know your business relates to fast food!”. Ray Kroc calmly replied to the shock of his audience: “Ladies and gentleman, the service I provide relates to food but my business is real estate”.
This signifies that investing in real estate is one of the primary determinants of wealth, irrespective of where you live in. The McDonalds corporation has been known to use their earnings in order to purchase many properties in prime locations across the world, resulting in a fairly profitable business & increasing brand value.
I also read somewhere that individuals who owned real estate in Canada were on average 20 to 30 times more wealthy than their counterparts which rented. Mind you, this statistic only relates to people who own one property, their principle residence.
This difference in wealth is even more profound if the person owns multiple properties. But you might be thinking that only affluent people can invest in real estate since they have the seed capital. I can tell you from experience that literally anyone can purchase a property in a couple of years if:
- They understand how the financial system works
- They cut down their day-to-day expenses
So yes, real estate is definitely a gateway to wealth. In Canada, the average real estate price increased around 9% from 2014 to 2015. Not a bad return in a year!
However, a real estate is only as good as the area it is in. Also, most properties aren’t good investments. In fact, only 5-10 properties out of every 100 you see or read about are good investments. However, if you gain experience in objectively analyzing different properties and their earning potential, in a couple of years you can amass great wealth.