11 Ways Real Estate Makes You Richer Than Stocks

0:00Have you ever felt like you're working harder, but your savings aren't moving an inch. If you're dumping every spare dollar into stocks, hoping your crypto hits big, or crossing your fingers, hoping to retire 30 years from now. Today, we're going to shake things up and let you know everything there is to know about wealth building. Real estate isn't just for the rich or experienced. It's actually the fastest way to start building tangible wealth, even if you're starting out with almost nothing. And today we've got 11 undeniable reasons why real estate should be your next move, especially if you've never invested before.

0:39This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's jump into the first reason. Now, reason number one is leverage. You can control a several hundred thousand dollar asset with sometimes nothing, sometimes maybe a percentage of what it costs. And I think most other types of wealth building activities, it's a little bit harder to do that. Now, if you're buying maybe a business, you go out and get an SBA loan or you seller finance that, true, you can do it that way. But I think about like stocks, and Ash, you're probably more well-versed in this than I am, but I can't walk into Chase and say, hey, can I get, I want to buy a million dollars worth of stock.

1:25Can you give me 800 ,000 of that? I'm just going to give you 200 ,000. So the leverage ability to have a small percentage of the overall value of this asset come from you directly, I think is a big, important reason why more folks think about investing in real estate. I always remember when I was younger, my uncle was talking about somebody who borrowed money to invest in the stock market. And he was just talking like, why would they borrow money to invest? You should save your money and invest it. That's such a bad idea to owe the bank money and then you're just investing in the stock market.

2:01Don't take on that debt, blah, blah, blah. And that always stuck with me. And I find it funny today because as a real estate investor, I take on debt all the time to invest. But I do think there's a different mindset around investing in stocks with taking a loan from the bank to invest in stock versus taking a loan from the bank to invest in a rental property. So I guess technically you could borrow money to invest in the stock market and pay it back every month. But you really have to run your numbers. And I think that's a big divide there is that you do have more control over the performance in analyzing a deal than you do over a stock.

2:47So if you're getting dividends from the stock and you say, oh, I'm just going to use my dividend payments to pay back my loan every month, my loan payment, and I'm going to make X amount of dollars in cash flow. I don't know if that's what the term would technically be called. I think that's a lot harder to analyze and to gauge compared to real estate. So I would say not to borrow money to invest in the stock market or other investments, But for real estate, I think you have that control. There's ways to know what your numbers are going to be. And yes, there are circumstances that come up when you need to put in a capital improvement, things like that.

3:28But that is also improving the value of the property. So there's those different things. As far as the business side, buying a business, like, yes, you can go out and get the SBA loan. There are a million hoops to have to jump through. Um, sometimes like I had a, a partner who bought a couple of businesses and they actually took his rental properties as collateral. So not only were they lending towards the business, but he had to give up all that equity and put those properties as collateral. And so until he pays off this SBA loan, those properties, he can't even tap into that equity because they were collateral above and beyond the business value.

4:13So I would say SBA loans aren't as great as mortgages either because it's not as straightforward too. I think there's some misconceptions, Ash, around how much cash do you actually need to control a piece of real estate? And a lot of rookies just automatically assume, hey, I've got to put down 20%, 25%, 30%. And yeah, while those are options, those loan products exist, we just had Jeff Wolgan on recently. And he talked about all the different loan products that are popping up for real estate investors. And there are so many different options out there, some lowdown, some no-down payments. And I think we'll touch on those a little bit later.

4:51But say you go out and buy a house hack. You could house hack your first real estate deal, FHA 3.5%, right? Or if you're a veteran, you can use a VA loan for zero down. If you qualify for something like NACA, which we've talked about a lot, 0 % down. So again, the ability to go out there and get a true, tangible, appreciating asset for three and a half, five, 10, maybe 15 % of the overall assets value is one of the unique parts of investing in real estate. Yeah, I think one thing to add to on the business side is I think it is a lot easier to invest in a property like be a landlord, for example, than it is to actually run a business.

5:31And I'm not saying as far as like the time you have to put into it or things like that. It's more of like the laws, the rules, the regulations, like paying workers, like especially if you have employees for your business, paying workers, making sure you have all the insurance that you need. paying into their disability? What are the HR rules that you need to follow? Making sure you're doing payroll every week. Getting your business license. What types of license do you need? So I helped another investor start a couple businesses like an insurance agency. I started my own liquor store. And especially doing ground up startup, those are a lot harder to get funding.

6:15For the liquor store, I had to use cash to fund the whole thing. So that was a lot of liquor. That first liquor order was very, very expensive. But now I own all of our inventory in cash. So that's great. But still, I think it's so much easier to get funding, have little money into something. That's the first big reason. I'd say reason number two is you get cash flow today versus someday in the distant future, right? 401ks, what's the age, Ashley? 59 and a half, right? You can tap into your 401k funds. What happens if you want some actual cash flows, some extra income today, right? You don't want to have to wait however long you need to wait to hit that benchmark.

7:05mark. And obviously with real estate, if you buy the right type of property, not only do you get, hey, this very low down payment option, but you also get the ability to maybe have some cash coming in on a monthly basis as well. And I don't know, dividends pay maybe one or 2%, you know, barely keeping up with inflation. So the idea that you get the long-term payoff, but you also get some cash in your pocket today is another reason real estate is so attractive. Yeah. And I think to kind of add on to that piece, as far as the cash flow, like with real estate or property, you have the opportunity to create additional income stream.

7:41They'll say this property has a garage. You can charge people to rent the garage. You could charge people like you live near a stadium. You could charge people to park in your parking lot. Like that is one of the best things I think there is about real estate is there is opportunity to generate additional revenue. So we just had Lika Deva on and she talked about building an ADU or a DADU onto an existing property to basically create two single family homes and generate. She was like generating 300K above and beyond in additional equity, above and beyond what she was putting into building these properties.

8:23So that's a huge chunk of equity to gain just from building an additional property or additional building on the property. You know, I get it might not sound super sexy to say, yeah, I have this property. I'm making 200 bucks per month. But when you think about the work that goes into it after you own it, you know, you've got a property manager in place. you can start stacking these up without it taking up an incredible amount of your time. And although it's maybe not as passive as investing in stocks, the cash flow you're getting for the effort that goes into it is probably a pretty good return on your time.

8:56So I think that's the second reason is that you get this ability to get cash flow today. And if you keep buying, we interviewed Dave Meyer not too long ago. And he said, my goal was just to very unsexy, buy a couple of rentals every couple of years and do that for 15 years and I'll be in a really good spot. And I'm so happy he said that because he just simplified it in a way that I think a lot of rookies need to hear. You don't have to do anything amazing. You don't have to be a great marketer. You don't have to be a great copywriter. You don't have to be a great salesperson. You just got to know how to choose markets, analyze deals, and find good property managers.

9:28If you do that effectively over and over again, that$200 here,$300 there really starts to add up over time. And then, I guess the other piece of this too is that rents go up. And we'll talk about this a little bit more later, but it's like the rent you're getting today could be very different than the rent you're getting 10 years from now, right? So it grows over time as well. And from what I've seen, at least, is that your mortgage payment, the principal and interest will stay the same if you've got a 30-year fixed rate. Your insurance and your property taxes will increase. And as long as you're not in Florida or somewhere where they're like doubling, that rent should outpace how much your mortgage payment is increasing with those expenses.

10:10So as time goes on, you'll see that there becomes a wider and wider gap of profit that you're making from the property. All right, moving on to reason number three is that your tenants pay down your loan. If you're investing in the stock market, maybe you've got like an employer match. But aside from that, you're the only person who's responsible for making sure that that amount is growing month over month and year over year. But when you own a piece of real estate, you sign a lease, tenants move in, or if you're like me, maybe you have a guest staying at your property if it's a short-term rental, they are the people who are paying you the money that's needed to cover your mortgage and hopefully a little bit more above and beyond that.

10:46So you don't need to be disciplined in the way that you do with the 401k to make sure you're stocking away money every month. It's just going to happen automatically. Yeah, I think that a big issue with this is that when someone, like, I guess when you're growing up, you hear of retirement accounts and you hear that is that the standard way to invest, like, when you get a job, you've got to invest into your 401k, you've got to invest into your retirement accounts. But really, that is not the complete answer. You don't have to follow that path. And I think this is one of the biggest eye-opening, awakening things for me was the equity that gets built up in your property.

11:29It's like, yes, you're 401k. As you put money in over time, maybe your employer match, you see that grow. You see the compound interest of continuously investing in that. But what is also super amazing is when you own a property and after 10 years, and 10 years can go fast, you look at like, oh my God, I have so much equity in that property. And a huge part of that, it could be appreciation, but it is that loan paydown from your tenant paying that down for you. And all of a sudden, you can now tap into$100 ,000 in equity from this property, and it's still cash flowing for you every month. So it's still bringing in money, and you're building all this wealth.

12:07And I think that was a big like realization for me of like, okay, yeah, I bought these$200,$150 cash flowing properties for years. And it's like, okay, yeah, that adds up to a good chunk of money. And over time that cash flows, you know, increased and, you know, it's great. But the real like aha moment for me was when I looked at how much my equity has grown over the past 10 years and in some of the properties and each additional. And I think that is the real like wealth builder right there. It's not usually the cash flow. It's the equity from the tenant mortgage pay down and the appreciation in the property.

12:48Even in a flat market, it's saying that there's no appreciation. You're still going to win because of this loan pay down. And we had David Green on the podcast at one point, and he talked about just like, if you just buy a property, put it on a 15-year fixed mortgage, and you do that every year, every couple of years, it's like every 15 years, you're going to have a property getting paid off where there's no loan on that property anymore. And you own it free and clear. Now, all of that cash flow is yours, right? Aside from your operating expenses and property taxes. But yeah, the ability to have the loan going down while the property value is going up.

13:20Another big reason why investing in real estate is such a big win. Next, we'll cover the legal IRS twist that can wipe out part of your W-2 tax bill, plus how 8 % inflation might actually flatten your wallet if you're holding property. All that right after a quick word from today's show sponsors. If I had to hire someone to join the BiggerPockets team, I wouldn't just go looking for someone who checks a few boxes on a resume. I'd want someone who understands real estate, can move fast, communicates well, and can jump into a fast-paced environment without missing a beat. When you need that kind of person, this is a job for sponsored jobs.

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16:42This is a paid advertisement. Okay, you've got the quick wins. Let's see how real estate can protect and accelerate your wealth. All right, so reason number four, there are multiple ways to build wealth. We talked about this a little bit before on reason number three, but stocks, I guess you really only win in one condition, and that's if the value of those stocks go up. But if the market goes sideways for a few years, and I think this is the worst for people who are like nearing retirement age, and then the market does something crazy. And it's like right when they're looking to retire, they see this big drop in their stock portfolio.

17:15That sucks, right? And even for new investors, I think the volatility, the up and down of the stock market can maybe rattle new investors and get them to sell at the wrong time. But with real estate, I think there's multiple ways that you can really build well. So we already talked about your loan balance being paid down by your guests. There's the appreciation aspect of just the value of that going up over time. There's the cash flow component, which we discussed. And you also have the ability to get tax benefits. We have a very, right now, a very real estate investing friendly administration, and the tax benefits of investing in real estate just got better.

17:54So you're not just looking at, man, I need the price of this stock to go up. There's a lot of different factors that can help you build wealth when it comes to owning real estate. It even reminds me of the first deal that I ever did, and it kind of combines a lot of what we've talked about already. but my very first real estate deal, I had a very low down payment option. It was$0 out of pocket. So my cash to acquire this asset was pretty much zero. The property I purchased for$100 ,000. I had a loan that covered the purchase price and the renovation. And when I was done, it appraised for about$250 ,000.

18:28So with$0 out of pocket, I was able to get an asset that was valued at$250 ,000. Then in addition to owning the asset, I got tenants that moved in, paid me rent. And that was cashflow in close to about, I think, 150 to 200 bucks a month, not life-changing money, but again, no cash out of pocket asset that appreciated. And I'm getting cashflow every single month. It's hard to beat that hard to beat that. So again, multiple ways to build wealth when you're doing real estate the right way. I had a situation where I was at a bank and I was getting a line of credit with my partner and he was getting a line of credit on a property.

19:03and we were talking to the loan officer as we're like closing on our line of credits together and we're telling him about this property that we just got under contract we were so excited it was like 37 000 this duplex and we were going to ask our private money lender to lend on it and he you know i had the actual bigger pockets calculator report with me because i was showing my partner while we were waiting and so i handed to the loan officer and he goes well you know i I probably could give you a better interest rate. Let me know what your private lender is doing. And we just kind of look at each other.

19:37So we're like, well, what could you do? And so he said, I'll give you a 90-day unsecured loan. So no collateral, not backed for anything with the exact dollar amount we needed to close on that property. And I can't remember what the interest rate was on that 90-day loan, but very minimal. So basically, the loan started the day we closed on the property. and he just wanted us to come back to that same bank and refinance into a long-term loan to pay off that short-term loan. And so we did and we got an appraisal within a week. The only thing we had done to the property in that week was put a$800 fridge in there and the property appraised for like 55 ,000 or something like that.

20:23And they let us take 80 % of it and me and my partner each like walked away with$2 ,000 each in cash that was above and beyond what we needed to pay off that loan, the 90-day loan, and to put some reserves in the property, in the bank account for the property. And we each got$2 ,000 each. And so that was like, wow, this is so cool that there are this many options out there to build wealth and that we were able to put money back into our pocket and And our tenants will pay back that 2K plus interest for each of us along with the property. Hard to beat. There's so much flexibility in how you can approach these deals.

21:08So yeah. All right. Reason number five is real estate investing is one of the best avenues to build wealth when it comes to taxes and reducing your taxable income. The average American is probably going to lose 20 to 35 to maybe even 40 % of their earned income to taxes on an annual basis. And there are a lot of people who dread that April deadline every single year. However, again, real estate investing allows you to reduce or sometimes completely eliminate not only your income earned through real estate investing, but your income earned through other places as well, through your W-2 income. I'll give you guys a quick example.

21:47We invest a lot in short-term rentals, obviously, and there's something called the short-term tax loophole. It's not a real loophole. It's like in the IRS tax code. But basically, if you do what's called material participation, if you materially participate inside of your short-term rental, managing it, talking to guests, setting up, doing whatever, then you have the ability to offset some of your paper losses against other forms of active income, including your W-2 income. And I've met a lot of short-term rental investors. I've worked with a lot of short-term rental investors who have been able to eliminate their tax bill from their day jobs by investing in short-term rentals, qualifying for material participation, performing a cost segregation study, getting bonus appreciation.

22:31I know I'm throwing out a lot of terms right here that you may not be familiar with, but just know if you get a good CPA, you buy a good piece of real estate, there is an opportunity to get your W-2 taxable income down to zero. So imagine even if you buy a property and you just break even, like you get no cash flow, but you get the ability to offset or reduce or eliminate the taxes you're paying in your day job. Is that worth it? I know people who just buy a short-term rental every single year for no reason other than to eliminate their tax burden from their day job. And is that not a great strategy?

23:06How much more money are you getting back on an annual basis while still getting the appreciation that we talked about, while still maybe getting some of the cash flow we talked about. So the tax benefits, I think, are something that a lot of rookies overlook when it comes to investing in real estate. This is also something that took me a while to realize that like, okay, I'm paying X amount in taxes from my W-2, but if I'm able to offset that, that's money back in my pocket. So like a great way to look at it is if, okay, so if you make 200K a year, but maybe you do. I love the example with a live-in flip where you live in the property for two years and then you sell it.

23:45And since it was your primary residence for two of the last five years, you don't have to pay any taxes on the gain. So like if you made 200K, that could be like you making 400K in your W2, you know, depending what, you know, what tax bracket you're in and other things you have going on. But like, most likely you're paying close to 50 % tax as if you're just straight W-2 and have no other credits or deductions or anything like that. So I always think of it that way too. Like I don't have to work as hard if I take advantage of all of these tax savings. Hence why I'm doing a live and flip right now so that in a year and have to go, I can have a big payday and not have to pay any taxes on it.

24:37And yeah, it's a little bit of a sacrifice not living in a very nice remodeled home and slowly getting remodeled. But you could also do a live and flip and completely remodel the home before you actually move into the property. But the live and flip strategy with selling your property for tax-free game. I think another big one is the short-term rental loophole. I'm doing two of my first cost segs for this year, going through that, learning that whole side of things. But yeah, you can't get these kind of write-offs and these deductions and these tax advantages, these legal loopholes with investing in a lot of other asset classes.

25:25I think that's why there's the saying that whatever, like 80 % of millionaires own real estate. And I don't think it's necessarily because all of them maybe started off in real estate, but they realize that maybe they've got a really successful business and real estate is the best way to protect all of that income that they're making. So again, even if you don't want to build a massive portfolio, maybe you've already got a really successful day job that you enjoy. Maybe you've got a really successful business that you plan to keep still including real estate as part of your wealth building strategy can help just to offset the taxes you're paying on those other forms of income.

25:57All right. Reason number six, real estate is actually a good hedge against inflation. We saw inflation go crazy post COVID and whatever, eggs were$13 a dozen. But what we saw was that real estate prices and rent for the most part paced with inflation. And while inflation was going crazy and egg prices were going up and all these different things, we also saw home value skyrocket during that same time. So when you think about trying to make sure that the money you have sitting in, you know, I don't know, your savings account losing value, had you parked that same money into a real estate deal, it would have gone up or maybe even exceeded what inflation was doing.