Four Tips on How Real Estate Makes the Millionaire

The American Dream often means having a fulfilling career, working hard, buy a home, having a family and, perhaps, becoming a millionaire. However, few will become millionaires because we are so focused on acquiring possessions today rather than building wealth in the long-term future. The Millionaire Next Door, a study comparing the behavior of millionaires and non-millionaires, authors Thomas Stanley and William Danko reported that the most prominent idea in our American society is to “spend tomorrow’s cash today.” Many future non-millionaires plan to save or invest, but are far more likely to be accumulating credit card debt rather than building their savings for a future investment.  Non-millionaires also create financial plans based on what they believe their income might be in the future, instead of what they’re making today.

In The Millionaire Next Door, Stanley and Danko profiled several millionaires and came to the conclusion that Americans have a serious misconception of who millionaires are and how they build their wealth. We often imagine millionaires living as celebrities on yachts, being members of exclusive country clubs, or purchasing luxurious items on Rodeo Drive without worrying about a budget. The reality is most ‘real’ millionaires rarely live their lives in such fanciful, grandiose lifestyles, but instead spend very little on materialistic possessions and are laser-focused on investing in America’s best-known wealth generating secret: real estate.

Here are a few tips you should consider if you want to become a millionaire with real estate.

Live Below Your Means

People who spend more than they earn will never increase their net worth. Period. As Stanley and Danko found, it’s far too common in the U.S. for people to spend beyond their current income. Americans tend to spend more than the recommended 30% of their income on housing, rely far too much on credit cards that charge high interest rates, neglect creating emergency funds, and do not start investing early. Establishing a budget according to what you earn today can become the first step to building a savings that can be used to invest in real estate.

Avoid Getting Caught Up in Status

The authors found that the millionaires they met weren’t particularly concerned with impressing others. They valued financial independence over status, meaning they typically spent less than their peers because maintaining an expensive lifestyle for social status doesn’t build wealth. Take, for instance, Warren Buffett. Generally regarded as the greatest investor and worth billions, Buffett still lives in the same five-bed home in Omaha, Neb., that he purchased in 1958 for $31,000, rather than living in the poshest neighborhood in Omaha.

Beware of Expensive Habits

Who doesn’t like splurging on yourself occasionally? It is far too easy for an infrequent splurge to turn into an expensive habit. Frequent, small financial decisions today can account for a huge financial disadvantage in the future. Smoking is a great example because smokers can spend a relatively small amount today on a pack of cigarettes, but will have spent thousands of dollars after just a few years. Poor discretionary spending decisions make it difficult to build net worth. Likewise, those who need their Starbucks fix every morning are spending a $5 that could instead go towards real estate investments and their millionaire dream.

Start Investing Early – And Diversifying

Though millionaires don’t often spend a lot, they prioritize investing in real estate – and began investing early. Rather than living paycheck-to-paycheck, future millionaires use real estate investments to create passive income. Passive income is regular earnings outside of your work paychecks which can be used to pay debts or upgrade investments to create even more wealth, and provide extra financial security.

Real estate investments that can offer passive income and build your long-term wealth include flipping homes, rent-to-own options, buying and managing a rental property, purchasing a vacation property, or – most commonly – simply owning your home! No matter what you decide, real estate investing is a great way to start earning passive income to supplement what you’re already earning.

This month, I’m interviewing four millionaires who made their wealth through real estate. Be sure to watch my weekly videos on YouTube to learn how you, too, can find success in your real estate endeavors. If you are beginning to think about investing in real estate to reach your millionaire dreams, take your first step today and contact The Rueth Team to get started!