Millions of people have gotten rich by investing in real estate.
Robert Kiyosaki, the author of the best-selling book Rich Dad Poor Dad, loves to invest in real estate.
Some people have become rich by actively investing in real estate: the flip houses, purchase single-family homes to rent along with apartment buildings, and even commercial property.
Others have become paper millionaires when their home appreciates. When they sell their home, their equity is converted into cash.
So why is it that more people don’t invest in real estate to get rich?
Many people cannot afford to buy a home
The American dream of homeownership is not guaranteed – not everyone can participate.
The student loan crisis has made homeownership a lot more difficult. In fact, student loan debt is killing the American dream.
Buying a home is often the largest financial investment we make.
To buy a home, most lenders require a 20% down payment. For example, if the home you want to purchase costs $200,000, you will need to put $40,000 down.
Saving $40,000 is not that easy for most Americans. It’s extremely difficult. According to the Social Security Administration, 51% of Americans make less than $30,000 a year.
Even with a side hustle to earn extra money, that money is often used to make ends meet as opposed to saving for a down payment on a home.
If making a 20% down payment on a $200,000 house is difficult, imagine how hard it must be purchasing a home in California – in cities like Los Angeles, San Diego, and San Francisco.
Some people have a renter mentality
I had a renter that lived in one of my rental homes for over 10 years. I started renting to her when the previous house she lived in was foreclosed.
This woman was a landlord’s dream. She paid the rent on time each month and took great care of the property. I never heard from her unless there was a needed repair.
After ten years of her paying my mortgage, I had a lot of equity in the home, and it made sense to cash out. I was ready to sell my investment property.
My renter was an elderly woman. She had been retired for several years. She was comfortable living in my rental property and didn’t want to move.
Before attempting to sell the house to someone else, I offered her an opportunity to buy the house. I would offer her the house at a lower price, a price that would make her monthly payments near the current rental price she paid each month.
It would be a win-win. I would be able to sell my house at a profit, and she would be able to continue living in a house she was comfortable with.
I gave her the name and contact number of a reputable mortgage lender. She had a good retirement income and good credit. Getting a mortgage loan would be easy.
Unfortunately, I was wrong.
It turns out that the woman’s debt to income ratio was too high.
While the amount I charged in rent was only $750 a month, the cost of the new car she was driving was $500 a month!
To my surprise, she was unwilling to give up the car to lower her debt to income ratio.
To make a long story short, after paying me rent for over 10 years, her bad financial decisions kept her from being able to become a homeowner again.
I sold the house to someone else at a significant profit. To date, she is still renting.
Some people choose to invest in other types of assets
Some people believe that investing in real estate is too much work.
They have no desire to become a landlord and have to worry about fixing broken toilets, leaky faucets, or have to worry about evicting a troublesome tenant.
I say leave those concerns to the property manager. But that’s just me.
They would rather invest in their employer’s 401k plan, in individual stocks, mutual funds, or treasury securities.
Personally, I no longer like 401k plans, which I will discuss in a later post. I prefer investing in index funds and stocks that pay a dividend – like the dividend aristocrats.
Nevertheless, investing in stocks, like real estate, can be a good idea.