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So, why are so many real estate investors rich?
I often hear real estate investors say that “millionaires are created through investing in real estate”.I’m not going to dispute that claim. Many real estate investors have a high net worth.
Part of the reason many real estate investors are wealthy is that real estate is a solid investment. Despite all of the shortcomings I’ve highlighted, real estate can help build wealth both through the monthly rent collected and the long term increase in real estate prices.
However, the real reason real estate investors might have more wealth than the average stock market investor is because they use leverage.
Leverage means you used debt to invest. In the case of real estate, this often means getting a mortgage. Real estate investors might put down 20% of the purchase price of a property and borrow the other 80%.
Each year the mortgage balance declines and (hopefully) real estate prices increase. The difference between the value of a property and the outstanding mortgage balance is the equity in the property.
For every dollar increase in a property’s equity, the investor’s net worth increases by a dollar.
The same logic of leverage applies when investing in the stock market.
It happens to be the case that investors are much more comfortable using ... more

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