Define Wealth.. Real Estate Investing, continued!

On April 14, 2010 by Karen

Money Tree

Think about it!

The past couple of years have caused many people to have a bad feeling about real estate. They will tell you that real estate is in the tank, that it’s no longer a good investment, but when you ask them what’s the best way to build wealth, most will still tell you it’s through real estate investments!

I enjoy asking people to define wealth. Try it! You’ll get a ton of different answers.

The problem is that most people confuse income and wealth. They aren’t the same. Wealth is not the big house you live in.  It’s not the expensive car you drive. It’s not the fancy clothes you wear.  It’s not your country club membership or your boat or plane. These things may all be indicators that you have a good income, but they don’t mean you’re wealthy. Wealth is measured by how long you can maintain your standard of living if you’re suddenly no longer able to work and earn.

Wealth is an income stream, a source of passive income that doesn’t require you to trade your time for money. Passive income is interest, dividends, royalties, or other instruments in which you have invested prior earnings or expertise. Income from rental real estate investments also qualifies as passive income and is possibly the best way for average working people to build wealth.

Real estate is known as the world’s greatest wealth builder.  It’s the only investment I know of where ordinary working people can make a purchase using only a small amount of their earned income and have that investment produce enough revenue to pay for itself plus provide a return on the cash used to leverage the purchases.

In the stock market, you can borrow only 50 percent to buy stocks and bonds.  Real estate can frequently be financed 100 percent or more and still cash flow. That means that, under the right circumstances, you can buy properties with little or no money down, finance the full purchase, and not have to dip into your wages to pay for it.

One problem with the ability to highly leverage real estate is that it attracts speculators who have no intention of holding the properties for the ongoing income they can generate. These speculators acquire real estate to sell to others, which works fine as long as there are buyers willing to pay enough to give them a profit. However, when the market goes cold and buyers aren’t there, it can be disastrous. That’s what we’re seeing in the market right now.

Stick with the wealth building and see what happens in few years!!!

Happy Investing!

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