Why Rental Property Is Responsible for So Many Self-Made Millionaires

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You might have heard that property investments—especially rental property investments—are responsible for more self-made millionaires than any other endeavor. While it’s hard to prove this definitively, it’s certainly true that many people have used rental properties to accumulate wealth, and that rental properties are a more straightforward and reliable wealth generation strategy than things like starting a business from scratch or investing in the stock market.

Why is this the case?

The Reliability of Property

Compared to other avenues, property is extremely reliable. People will always need property to live and work, and there’s a finite amount of property available. Accordingly, property prices have increased steadily over time, and there’s no indication that any disruptive technology or cultural change could impact our need for property. This makes it a super reliable long-term investment, and one that’s not subject to the risk and volatility of other asset classes.

Ongoing Cash Flow

There are many ways to invest in property, but rental properties specifically carry an important advantage: the potential to generate cash flow. With a rental property, you’ll pay a certain amount in expenses each month, for things like loan payments, insurance, property taxes, and upkeep costs. But you’ll also collect rental income from tenants, typically exceeding your expenses.

Rental property owners can pocket the difference as profit each month. This profitability varies based on the nature of your property and your management strategy, but any consistent stream of income can instantly grant you more financial stability.

Long-Term Growth

Cash flow is a great way to offset the expenses of managing a property, but it’s not how most property owners make their biggest profit. Instead, most property owners cash in when it comes time to sell the property, often years or even decades down the road. In addition to making a small amount of money each month during their tenure as property owner, they can capitalize on the price increases they likely saw along the way. This is especially true if you invest in up-and-coming neighborhoods with particularly attractive growth rates.

Management Options and Flexibility

Another advantage of rental properties is the sheer amount of management options and flexibility available to owners. You can buy rental properties practically anywhere, especially if you leverage the help of a property management company. Property management companies, in exchange for a portion of your rental income, will take care of most responsibilities on your behalf; for example, they’ll typically market your property, screen tenants, and take care of rent collection and repairs. They can also help you manage a property in a different city, or even halfway across the world.

Accessibility

In line with this, rental property management is an accessible wealth generation strategy, especially when compared to others with a high barrier to entry. Buying your first rental property could cost several hundred thousand dollars, but if you choose the right neighborhood, you can easily lower that cost to tens of thousands of dollars. As long as you have decent credit and some money to put down, you can also get a loan for the majority of the purchase price, increasing accessibility further.

Portfolio Expansion and Diversification

Once you have your foothold in the rental property sphere, you can snowball your investment by expanding your portfolio. With the proceeds from your first rental property, you can purchase another property and improve your revenue stream further. Do this a few times, and eventually, you’ll have a robust portfolio that generates significant cash.

This is also a chance for investors to diversify their rental property portfolio. Through diversification, they can hedge their risks and maximize their long-term results.

Compatibility With Other Strategies

Rental property is also appealing (and conducive to wealth generation) because it fits well with other strategies. You can manage rental properties while simultaneously running a business, managing a side gig, and investing in stocks, for example. Together, these strategies form powerful synergies and set a course for long-term wealth generation.

Experience and Improvement

Newcomers often struggle with property investment, purchasing “bad” or unprofitable properties, or running into difficulties with tenant management. However, it’s easy to learn from your mistakes—especially with a mentor—and the more experience you get, the better property purchasing and management decisions you’ll make. In short, the longer you’re in the game, the more money you’ll stand to make.

Rental property management isn’t strictly the “best” investment strategy, nor is it the right play for every aspiring investor, but it does have a lot of advantages that make it favorable to building wealth. It’s highly accessible, it’s capable of making money in several ways, it’s flexible, and it’s reliable. With enough knowledge and experience, almost anyone can make the strategy work.

 

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