Industrialist Andrew Carnegie famously said, “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.”
Following in those footsteps, Jeff Bezos knows this asset is one of the best alternative investments, which is ultimately why he backed the fractional property investing platform Arrived.
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If you want to make your mint, it may be time to look outside traditional investments like mutual funds, stocks and bonds and stake your claim in land ownership like wealthy Americans do. Here are six reasons the upper class love to invest in this particular asset.
It Lets You Tap Into That Cash Flow
As an asset class, real estate does an exceptional job of generating cash flow, typically in the form of rental income. In some cases, more than half of the total returns come from this — and it’s income that you can potentially live on.
It’s no surprise that real estate income constitutes a significant portion of many millionaires’ and billionaires’ wealth. Whether they own billions in corporate spaces and apartment complexes or just have one or two rental properties, investing in property is a surefire way to produce a lucrative passive income stream.
Cash flow from real estate almost always improves over time as well. You pay for the property once and then collect “forever income” that rises every year along with inflation (more on that shortly).
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Your Bank Account Will Appreciate the Appreciation
In addition to generating income, real estate typically appreciates over time, often inching up 1%-3% in a year. At other times, property values skyrocket to levels much higher. Either way, no reason to keep private equity private, as real estate helps grow your net worth over time.
It’s Always Good To Have Leverage
When you buy real estate, you can do so with (mostly) other people’s money. In fact, tax breaks, appreciation and the leverage alone almost put this type of investment in an unfair asset class. This is why you often see the uber-wealthy with multiple properties and real estate holdings.
You can’t argue with the leverage you get, as it allows a 20% increase in the property value to create a 100% return on your capital investment if you put down 20% of the purchase price. When you can leverage the bank’s money rather than your own, it is great for your timeline prospects and risk tolerance.
You Can Stay Passively Active or Actively Passive
Investing in real estate gives you flexibility because you can choose to be an active property buyer or a passive investor and still receive money. This win-win situation can be great for anyone who wants to start a business, but doesn’t know what type of business to launch.
You could also invest in REITs (real estate investment trusts). Just beware that they don’t offer much as much of a diversification benefit.
Diversification Is the Key to Success
Real estate shares a low correlation with stock markets, making it an ideal way to diversify your portfolio. The stock market can crash, rebound, and gyrate all over the place, even as your real estate income keeps flowing. An alternative investment, like buying a house or commercial property, adds another level of diversification that is not correlated with the markets.
Even within the realm of real estate, you can diversify across many property types and cities. You can invest fractionally in industrial properties, multifamily apartment complexes, retail properties, office buildings, and even mobile home parks, marinas or farmland. One sector might struggle as turbulence hits that industry, but that doesn’t mean it will impact your other investment types.
Inflation Protection Gets Better Every Year
Currency values shift over time, but people still need shelter, restaurants still need a physical location to serve guests, and doctors still need medical offices to see patients. That means they’ll pay the going rate, whatever the value of the currency. Rents are one of the primary drivers of inflation, not the other way around. Since 1980, rents have risen 1.27% faster than inflation in the U.S.
You don’t need to be a millionaire (much less a billionaire) to invest in real estate. The rich love real estate for good reasons. Consider taking a page out of their book to build your own recession-resistant, income-producing portfolio.
G. Brian Davis contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 6 Reasons Billionaires Like Bezos Love This Alternative Investment
