You Won’t Get Rich Investing in Real Estate…Here’s Why
The Amplified Impact Podcast
January 28th, 2023
Let’s debunk a real estate myth: “90% of millionaires invest in real estate.” True, but most didn’t get rich solely from it.
Real estate is great for the long game, preserving wealth, not quick gains.
Passive investments offer decent returns, but the real money? That’s in building a real estate business.
It’s a rollercoaster, but that’s where the big wins are.
Whether you’re investing or diving into the hustle, manage those expectations.
Real estate is a stability rock, but real wealth? In the active game.
TWEETABLE QUOTE:
“Real estate investing is great for wealth preservation. Building a real estate investing business is great for generating wealth.”
– Anthony Vicino
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Episode Transcript:
I think there’s a really common misconception around investing in real estate and the power that it can have for making you wealthy beyond all, beyond all your hopes and dreams. There’s a lot of people out there who will say things like, you know, 90% of millionaires are invested in real estate, and then they’ll falsely make the conclusion that the reason they’re millionaires is because of the real estate. You hear this, it’s a false equivalency. And first of all, that statistic, 90% of millionaires own real estate, that I have never found any statistical evidence for. I don’t know where that number is being quoted from. I know the original quote was attributed to Andrew Carnegie, but I don’t know where he got his information. Now, I will say that in my personal experience, the vast number of wealthy individuals I know are invested in real estate. However, the majority of them did not get wealthy through real estate.
And this is a really important distinction. I want to paint this very clearly. See, if you want to preserve your wealth, then investing in real estate is the best vehicle for sure. So if you’ve built a cash generating machine in your business, you have a lot of money and you want to protect it through a tax advantage vehicle that puts off good returns and a stable asset, that long term is going to keep appreciating and you get all the benefits of passing it on to future generations through a tax deferral program called the 1031. Then real estate. Investing in real estate is the bees knees. Nothing else compares to it, truly. So real estate investing is great for wealth preservation.
However, if you do not have a lot of money, say you’re making mid five, say you’re making between 50,000 and $250,000 a year. That’s great income for a lot of people. However, just investing in the real estate is not probably going to make you wealthy. What will make you wealthy, though, is building a real estate investing business. Okay? So the way to think about this is that investing in real estate is great for wealth preservation. Building a real estate investing business is great for generating wealth, okay? Those are very, very different things. Most people, when they get into real estate investing, they want that first thing. They just want to invest in real estate, but they want the benefits of having built an investing business.
And so here’s the distinction. Investing in real estate might be I’m putting 50,000 or $100,000 into a private placement, a syndication with an operator like one of my companies, Invictus. Okay? So what we do in that situation is you as the passive investor or the limited partner, you give us $100,000, we’re going out there and we’re pooling funds from maybe 15, 2030 other investors, and we’re going to buy a building that’s worth about $10 million, let’s say. Now we are going to own and operate that asset on your behalf, and you’re going to generate the tax benefits and the returns, and those are all great, and they’re in a lot of cases superior to what you can get in other investment vehicles. But in that world of, say, you give us $50,000, well, in five to seven years, the goal for us is to double, if not, maybe two and a half x, your capital. So in five to seven years, we take that 50,000 and we turn it back to you and it’s worth 100, maybe $120,000. That’s an awesome return. But that isn’t life changing sums of money, right? That isn’t probably, if you’re making between 50 and $250,000 a year, that’s not going to fundamentally change the quality of your life.
However, it is a great long term investment. If you keep doing that, stacking those over the next 2030 years, you’re going to have an incredible nest egg at the end of the process. Right? But if you want to generate true wealth in the short term, where you have financial freedom from real estate, then it’s not enough to just invest your cash into it. You need to put your other efforts into it, your sweat equity, right? And this is put yourself on the other side of the equation. My company, Invictus Capital, we are the ones that go out and find the asset. We acquire the asset, we take out the loan on the asset, we operate it throughout the life of the hold. We go and find the investors to bring into the asset and all these things, right? And so on this same deal where you might be getting two, two and a half x on your initial investment, we are coming in and we will be putting our money into the deal as well, and also generating that return. But because we are taking a portion of the equity based on the sweat, on the work on the systems and the team that we’re putting into place to operate this, at the end of this process, we’re going to take a disproportionate amount of the upside as a fee, as a thank you for running this deal, right? And that is where the real money is made.
However, it’s not passive. That is a legitimate, very hard, very complex, very stress inducing business model. But it all boils down to the fact that if you are not on the business side of the real estate investing, then you’re probably not going to generate outsized wealth. Okay. The other way to think about this is if you wanted to give me, say you wanted to partner with your buddy and he’s going to go and run an Airbnb for you, right? He has his Airbnb arbitrage business where he’s going out and acquiring these things and then he is operating them and everything. He’s going to gain a salary on this. He’s going to gain a lot more of the upside. But you’re just going to get a set return typically on your capital.
And this is just a really important mindset shift because I think a lot of people think they can just invest in real estate passively and become millionaires, and you can on a long enough time frame, but it’s not something that’s going to happen very quickly. And so when you see a lot of the gurus, myself included, talking about how we’ve scaled these portfolios really quickly and we’ve made all this money, it’s not because of the real estate itself and our capital doing all the work. It’s the capital coupled with the labor leverage. That is where the real value is coming and where we’re getting the exponential returns. Right. So I just wanted to set that straight because I think a lot of people go into real estate just wanting to invest in real estate, but they want the massive returns that they see in the get rich quick schemes and everything like that. But I think just calibrating expectations accordingly is very important. Sorry about that, guys.
I tried to shield the mic from my sneeze. Now, if you’re young and you want to build wealth through real estate, I think it’s a great vehicle to do that. There’s a lot of ways. You just need to pick a path and go and then master and learn it. And it’s going to take a while to do it, but the upside can be enormous. So you can go learn wholesaling, you can go learn fix and flips, you can go learn Airbnb short term rentals, you could learn midterm rentals, you could learn long term rentals. Like, there’s so many different asset classes and ways to make money within real estate. The key is just to pick a niche and then focus on it.
So you do that, you can make money. But for most people, if you just want to invest in real estate, you have a good stable job, you’re making good income. You don’t intend to go out and build in a business. You don’t want to hire teams and train the teams and do all the stuff that comes with having an asset. Then just invest in real estate and know it’s going to generate better returns than you would on the stock market. But nobody gets rich in the stock market investing in an index fund. Right? And it’s fundamentally really no different when you’re investing into the real estate from the limited partner or passive side. So hope this brings a little bit of clarity as you’re kind of navigating that world, because I think there’s a lot of miscommunication, intentional and unintentional, being put out there on the social webs.
So hopefully this brings you a little bit of value. And as always, guys and gals, I appreciate you being here. We’ll catch you in the next episode.
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