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You Must Think Differently to Become Wealthy Through Real Estate Investment

You Must Think Differently to Become Wealthy Through Real Estate Investment 

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” - Robert Kiyosaki

There is only one way to get rich – that is slow.

Today I’m going to tell you how the wealthy create fortune, and it is all about how much money you keep. There are two ways people think. One way is the way wealthy people think. The other way is the way everyone else thinks.

99% of people do not think the same way as 1% of people. Quite simply, the 1% are the 1% because they either inherited it (lucky them) or they thought differently than 99% of people out there. The internet is filled with people thinking like the 99% of people and giving advice for 99% of people out there. Wouldn’t you rather be someone thinking differently and not falling for a get rich quick scheme?

In America, we love immediate gratification. We want everything now. Real estate investing is not for immediate gratification. If you delay your gratification, you will be greatly rewarded.

In order to become truly wealthy and financially secure, you need to find tax-efficient ways to make money. The wealthy do not make their money from their job or from cash flow.

Types of Real Estate Returns

Let’s start with the basics. There are different types of real estate returns.

  1. Cash flow from rent
  2. Cash flow from appreciation
  3. Cash flow from segregation

Cash flow from rent will be taxed at the highest tax return. Remember, the key to wealth is to find tax-efficient ways to make money. So why would you invest and base your decisions on the least tax-efficient way to make money, cash flow?

Liquidity Event

Real estate cash flow is a liquidity event. That is an event that causes a property to pay out cash to the owner. Examples of a real estate liquidity event are:

  1. Rent Money
  2. Property Sale
  3. 1031 Exchange (trade up)
  4. Cash out refinance

Back to our 99%. I guarantee 99% of people if given these 4 options would prefer monthly rent, the wealthy prefer the other 3 options. Here is why.

Monthly rent is taxed at the highest tax rate – like ordinary income. For the average California resident, that is 32% they pay in taxes, including monthly rent. That means, about 1/3 of the money you make in monthly rent goes to Uncle Sam.

Now, the other 3 options pay the lowest to no taxes.

A property sale, i.e., when you sell your home, is taxed at 0% - 15%. The average person for a 1031 exchange pays 0% taxes. The average person for a cash out refinance pays 0% in taxes. Remember, in order to become wealthy, you need to find tax efficient ways to make money. Three of these options maximize your tax efficiency with low to no taxes, one taxes at the highest rate.

Here’s the key. Most people make money through work and then invest for ordinary income – that monthly rent check they collect from their tenants. The wealthy build their fortune through long term capital gains.

Remember, ordinary Income is taxed at the highest rate. These are the things like money you make from a job, cashflow from real estate investments (rent paid to you), cashflow from dividends.

Long term capital gains are the lowest tax rate and are achieved through certain investment assets and appreciation of real estate.

The key I want you to remember when real estate investing is to not look for the get rich quick options. That is what 99% of people are investing for. To be a savvy investor and truly build your wealth, you need to look for the long term appreciation and ways to keep your money. Those who avoid immediate gratification today will be greatly rewarded tomorrow.

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Information shared is not meant to be tax advice. We are not tax professionals and always recommend you speak with a CPA who specializes in real estate taxes when making any investment decision.

We offer our real estate economic update and investment webinars for free because we believe everyone, no matter your background or where you are from, should have the opportunity to learn how to grow their wealth and financial security through real estate. Join our monthly webinars at kappelrealtygroup.com/webinars or contact me at Patrick.kappel@compass.com.

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Veteran owned and operated, the Kappel Realty Group is a team of Realtors focused on educating and assisting real estate buyers and sellers in the San Diego region. Nearly all of our agents have advanced degrees and master’s degrees in real estate or finance and half our agents are military veterans.
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