Although owning a house is all the rage these days with WFH and families needing separation from each-other with a room for each activity, it can get expensive quick and not always realistic for many Americans especially those fresh out of school dealing with student loans and not having a clue on how to manage their finances.
Donât worry thatâs 90% of the population anyway but why be like everyone else when you can rise to the ranks faster by simply reading a 10 min article?
Before we get into the most unique/easiest/best ways millionaires build their wealth, letâs identify the power of managing properties.
Real estate is one of the greatest passive income sources because of 4 main factors:
-Guaranteed positive passive income (homes will always be in demand since people need a place to live and WFH is in hybrid form here to stay)
-Leverage (can take out a mortgage-form of debt but once paid off, make more off of the home and officially in your name)
-Ironically less risk = more reward -never occurs with any other investment
-Physical/tangible asset, less volatile and almost always appreciates in value over time- unelss really crummy area w/ high crime and no future
If you want to become a millionaire and own what the top 10% have but cannot afford to invest in a tangible property dealing with tenants at the moment, lean towards crowdsourcing or REITs which are real estate properties traded in the market managed by a property manager.
At the start of the pandemic, when the Fed announced record bottom low interest rates to spur economic recovery and lower unemployment, this set the 10-year bond yield and mortgage rates to fall which lead to a surge in borrowing as rent in the most expensive cities in the US, NY, San Francisco, Seattle and Miami to plummet as people were seeking more space to thrive, pay less in taxes, and feel more at ease with more space.
Although prices are starting to even back out now, they are certainly still lower than they once were according to Apartment List, a real estate data site which can allow renters to take this time before we get back to normal to find their perfect place. As a life long New Yorker, in March 2020 it was surreal to see so many luxury apartment buildings vacant, more car registrations opened as city dwellers moved out to the Hamptons and those who previously couldnât afford the city now had their chance to come to the Big Apple at decently affordable rates.
Renting vs. Owning
The basic rule about renting vs buying is that renting is best if you plan on staying in the property for less than 5 years.
Otherwise, after 5 years, renting is not worth it because regardless if you rent for 2 or 10 years, it is always a -100% return so might as well cap it at a decent number whereâs after 5 years, you could already be making a decent return on your property that youâve purchased even considering the non-recoupable costs such as a mortgage, insurance, HOA fees, utilities, brokerage and lawyer fees, property taxes, renovation and transaction costs that cannot be refunded.
Thereâs this assumption that owning a home must be done by age 40 in order to live a fulfilling life and or check off it off a bucket list or something.
Graduate, get a job, get married, buy a home, have kids, and thatâs the typical American dream.
Yet people live in this fantasy too often and neglect what owning a home actually means.
With low interest rates, just because itâs on sale, in this case, a house with a lower price, doesnât always mean itâs a better deal.
People have jumped too quickly on purchasing a home this pandemic that many are regretting it wasting a lot of money, time and resources in the process instead of just waiting it out until life gets back to normal and then deciding.
Weighted Decision
Renting is best for those who donât want to settle down in a place just yet, especially when you are young, traveling for work and donât mind relocating for your job every few years.
In fact, according to a report on homeownership in the Business Review, the actual rate of return on US real estate between 1975â2009 was below 0% while in the stock market between that same time it was 3.375%.
Buying a home is the biggest financial decision anyway!
In the US, owner-occupied housing units made up 58.6 percent of total housing units, while renter-occupied units made up 30.4 percent of the inventory in the fourth quarter 2020 by the Census.Gov.com.
The most popular city for renters is Madison, Wisconsin and the best place to buy a house for 3 years in a row is Orlando, Florida due to its affordable location with social and economic benefits.
As weâve witnessed during the pandemic, countless companies, even Wall Street is debating on moving some offices and headquarters to Miami as Orlandoâs population has continued to grow 252% faster than the national average over the past 8 years.
A major reason and quite possibly maybe the only reason businesses and wealthy individuals migrate to Florida is because the state doesnât collect any property taxes.
You could also count on the weather.
No more Canada Gooses.
Taxes are the richâs enemy. They will do anything, cough, cough Amazon to hide their money in tax shelters to avoid spurring the economy and paying Uncle Sam.
The Image
Even if youâve taken out a mortgage on a home, it still offers a sense of pride since it takes a lot of effort to search for the best neighborhood, make sure the price is right, negotiate, find a broker that cares about finding the best deal for you and handling all the dealings from closing to renovations. It takes a lot of time and strain that some people, especially Millenails arenât willing to face.
Plus with the stock market at record highs, it doesnât even seem logical to put so much energy into a physical property when REITs are a few hundred dollars to buy and you donât have to manage any tenants.
Opening an investment account in Vanguard to Charles Swab is 10x easier and investing appeals Millennials for the right reason until it goes downhill on gambling apps such as Robinhood and WeBull.
Road to $1M
Thereâs no doubt $1M is a lot of money in general. There are only 11.8 million households in the US that have a net with of $1 million and that is equal to roughly 4% of the USâ entire population and 40% of the global millionaire population making the US the country with the most millionaires.
Regardless how you made that first million, whatâs hardest is to keep it.
Itâs much easier to spend than save and without the proper education, thatâs how people get into quick and deep trouble, especially sports athletes and lottery winners who sadly end up going broke overestimating how much theyâve acquired.
If you want to learn how to make $1M per year in a typical job, not necessarily 9â5 you can read here but if you donât want to be a slave to your time, work in the corporate setting or for Bezos in a factory, listen up.
As mentioned, real estate has consistently outperformed stocks past the Housing Crisis in â08-â09 when banks became more diligent about matching homeowners who could actually pay their mortgages and not worry about them defaulting (not able to pay).
The Housing Crisis a.k.a the subprime mortgage crisis was when banks sold too many mortgages to feed for the demand for mortgage-backed securities through the secondary market.
When the Fed raised the federal funds rate (FRR a.k.a interest rates) it set mortgages rates skyrocketing similarly to what we are seeing now with 15 to 30-year fixed rate mortgage near 3% and as a result, home prices plummeted and borrowers defaulted leading risk to spread to mutual, pension funds and corporations who owned and leased out these derivatives.
Past â09, if you bought real estate you are safe and have most likely seen great returns, especially in 2020 as home prices have soared roughly 15% with the median home price on record near $330k.
Although home prices are expected to rise once again, real estate can be a hassle, especially if you donât like dealing with tenants, checking up with them, dealing with a brokerage, etc.
Investing is always a smart move but whatâs even better is becoming your own boss
Just by saving $100 you can be on your way to making a million in a few months.
Finally, here are my 5 tips to $1M+:
#1: Buy and sell items from garage sales
The wealthy arenât embarrassed about taking risks or putting themselves out there. If you want to become comfortable, you will not change.
Making money also requires some up front costs and dedication. This doesnât necessarily mean a large upfront cost because money is just an excuse to start something but time and effort can never be underestimated.
Since I was a kid I had a frugal mindset because I knew what was worth my time and what I really needed to satisfy my wellbeing. Following trends and buying what others needed wasnât for me so I went to neighborâs garage sales to look for underpriced items like action figures, collectibles and even stuffed animals. You wonât believe how many families are looking for antique stuffed animals for their kids! Then
I went to eBay and observed the âsoldâ listings to see what they could be worth and made a couple thousand in a few days! Keep continuing that process by buying, reselling and bidding and youâll be on your way in no time not just for stuffed pandas.
#2: Invest in yourself
Invest in yourself so others will in you. There is no better use of your time than educating yourself because it truly pays dividends for a lifetime. This could entail reading more, spending less time on social media, networking, gaining experience, making mistakes, becoming comfortable with failure and asking questions in order to get ahead.
Once again, you have to become comfortable with the uncomfortable to succeed.
Education wonât pay off right away. Your time will come when it is necessary and youâll thank yourself later for that dedication.
#3: Buy a multimillion-dollar business with other peoplesâ money.
Many baby boomers are looking for someone trustworthy to take over their multimillion-dollar businesses so that they can retire.
Financial institutions can help you with acquisitions that will lend you the down payment regardless of your credit because they can use the business assets as collateral(asset tied to a security). You get the business with no money down and pay the remaining 70% over time using earnings from the business.
Find any business thatâs been around for sometime and the owner needs some help. Starting a startup is painful, agonizing and difficult. Most people quit as 99% of startups fail anyway. Buy a professional service or business (plumbing, nail salon, etc.) and youâll get through the struggles of most startups and be at the top quicker.
#4: Be Frugal Not Cheap
Part of saving, being frugal and grateful is knowing what you need. People love and are obsessed with image but you have no idea what others are going thorough. Donât compare yourself to anyone, especially the Joneses across the street with that fancy car because who knows, they might be going through a divorce, health problems or be in massive debt to be able to show off this lifestyle they cannot afford.
More often than not, the fancier (richer) you look, the less smart and wealthier you are. No wonder the richest people on the planet wear the same thing every day and drive Hondas or Teslas for one.
#5: Consulting
Focus on your strengths. If you know something better than most, capitalize on it. Creating a website takes a few dollars. I set up Boiled Not Fried on WordPress, started making money in less than 5 months with consulting readers on their financial matters and earning passive income through it. I donât even advertise myself. My audience directly emails me about help, want to speak and pay to do so.
You have a voice that deserves to be heard so use it.
Whether or not you really want to cross that six-figure mark, all of these tactics can be done at your own convenience, with little to no upfront cost and can help you start generating a few thousand per month.
Money doesnât care who you are. It is available and there is an abundance of it. Donât listen to your econ teacher. It starts with adding value and making sure you know yourself best in order to let others see what you are capable of.