Many years ago I worked for one of those large national real estate brokerage firms selling real estate. This was not my introduction to the real estate business, since I had been investing in buildings and property since 1984. My trainer was an older but highly successful real estate agent. One of the things he shared with me and the other trainee was the fact he had consistently earned over $10,000 per month for the past ten years. He drove a Corvette, was divorced, and owned one property–his residence. If my math is correct, he grossed somewhere in the area of $1,200,000 in ten years. That is right, somewhere in the area of one to one and a half million dollars had gone through his business hands in those working years.
While this individual was a talented agent who had built a nice customer following, I had to ask myself–Why hadn't he ever invested in the great product of real estate? It certainly could not have been an income problem. Even if that excuse were used, we all know 90-100% of a deal can be leveraged. I didn't know for sure, but this skilled agent gave me the impression he didn't have much money. He had income, but very little capital. It could have been that his divorce cleaned him out, financially speaking. Divorce is a major estate and wealth destroyer. (It is worth noting, the author of the book, The Millionaire's Mind, shows most millionaires have been married only once.)
With all of the benefits that accrue to real estate ownership, I am surprised by folks involved in the buying and selling of property on a daily basis who own no real estate. It is an enigma. Let's count some of the benefits:
- Discounts andinstant equity earned when buying
- Principle pay down on mortgage, monthly
- Appreciation–unknown upside potential
- Rehab and fix-up profits in terms of new equities
- Forced savings plan (can't sell or tap equity as easy as more liquid investments)
- Special capital gains and write-off advantages
- Ability to pyramid gains with 1031 tax free exchanges
- INCOME: RENTS
- Ability to grow net worth with no tax unless you sell
- Easy to purchase with leverage
I recently got an email from a company selling some real estate course. The main selling feature seemed to be his rant against being a landlord. It was almost like landlords are dumb because there are much smarter ways to make money. Again, this seems odd to me. Real estate is one of the greatest investments in the world. Why wouldn't I want to actually OWN it?
Buying and selling definitely has its place. But owning real estate is where you grow equity for the future. Contrary to all of the myths out there–owning real estate is where large estates are created. I am not ashamed to own property. Ownership, i.e., rental income is where freedom comes into being. It won't happen overnight, but give it 5-10 years with hard work, and you will launch yourself into a newfound freedom. I know it's hard for impetuous North Americans to think long term.
Back when I was fresh out of high school, I helped a friend and his family move. They had been renters all of their life. In fact, I estimate they had been renting for at least 25-years when I helped them move from one rental house to the next. The thing I remember is the totality of their life was in that moving truck that day. You see they didn't own any property; other than some worn out furniture and clothing–they had no equity. The sad thing was being long-term renters guaranteed them a life of virtual poverty. The bottom line: When you don't OWN real estate, it is extremely difficult to accumulate any net worth.
I will conclude with this. Years ago at our family business, there was a salesman who worked for one of our suppliers. He serviced our account (sold us Gibson appliances wholesale). He was one of the most honorable and decent guys you could ever meet. He was about 60-years old–about the same age as the real estate salesman mentioned above. He dressed very modestly, drove an average (boring) car. He looked like a regular, middle-class guy. His regular life was being a farmer. He did the sales job just for some spending money and to keep busy. As I got to know him, he disclosed that he owned 48 acres of farmland in a very up and coming area about 30 minutes from our business. THE POINT: The guy is a multi-millionaire–about 2 million. WHY? BECAUSE HE OWNED REAL ESTATE OVER A LONG TERM OF TIME! Real estate salesman who looks rich and who doesn't own his product, or a “poor” farmer? I'll take the farmer.