So You'd Like To Build Wealth In Real Estate?

Take a look at a list of the World's Richest People as compiled by any number of organizations such as the US "Forbes 400 Richest Americans", and look at where each of these individuals have built their wealth. Whilst these people have generated their wealth from a very eclectic field of businesses and professions, one stands out as more common and re-occurring than the rest: Real Estate! And for those that haven't generated their wealth directly in real estate, many of them will use real estate as a secure and solid asset to funnel and further grow their fortunes.

So what makes real estate stand out above all the other asset classes as the vehicle of choice for wealth creation? Here is some wealth education for you. There are a number of reasons, but four principle ones:

1. Leverage - When purchasing real estate, it is not uncommon, particularly for a house and land package, to be able to borrow 80% or 90% of the purchase price. Depending on the location of the land, the lender, and your borrowing position (i.e. whether you already have other assets or secure "professional" employment), 100% lends are also possible. If you went to your bank and told them that you wanted to buy their publicly listed shares and wanted a loan to do so, in most cases they would only lend you maybe up to 70% as a margin loan on listed shares in their very own bank! And yet this same bank would probably be more than happy to lend you 80% or 90% to purchase a well located property.

2. A Real Asset – Everybody Needs a Roof Over Their Head - Unlike "paper assets" such as stocks or derivative market instruments, real estate is something real and tangible. It physically exists! Even more importantly than this is the fact that everybody needs a roof over their head, and we all need space and a place to live. As long as there are people in a given area, there will be demand for real estate.

3. Limited Supply - Unlike virtually every other asset class, real estate is finite. Sure we can always build taller buildings with more apartments in them on the same size block of land, but there is only so much land, and only so much "well located" land near to public amenities, employment, and transportation.

4. Price Inflation - Your "leverage", or ability to borrow 80%, 90% or 100% of the purchase price of a piece of real estate, is only powerful if your property appreciates in value. If it depreciates… you could find yourself owing more than you originally borrowed! Whilst that may be a scary prospect, it is also pretty easy to avoid. Real estate price inflation occurs for a variety of reasons:

· Because of underlying inflation in the economy

· State of the Economy and Economic Health of the Nation Increasing Population