Most people make a living based on the physical work they do, earning a paycheck every few weeks in exchange for that work. Regardless of whether you get paid an annual salary sitting at a desk with a computer or are paid by the hour standing on a factory floor, at the end of the day you are making a living based on what you produce with your time. This is called active income because you must actively continue to work in order to maintain that income stream.
If you stop working, whether it’s due to an illness, a layoff, or just because you are reaching the age of retirement, that income stream ends.
Meanwhile, sophisticated investors have learned that the key to financial stability is through passive income. Passive income is the ability to earn a steady income stream and grow your wealth even when you are not working. Most individuals acquire passive income through investing.
The most widely known and prevalent form of investing is owning stock in publicly traded companies through the stock market – but there are more effective ways to earn money without actively working. While the average investor only invests in publicly traded stocks and bonds, high net worth investors tend also to invest in private assets to diversify their income streams, understanding that diversification is the most likely way to mitigate risk and maximize returns.
One of the most common differences between a wealthy investor’s portfolio and the average investor’s holdings is that wealthy investors tend to own more private real estate investments.
Real estate as an investment has been a top performing asset class for decades because it can provide both consistent income from rents as well as the potential for long-term appreciation. Real estate is also scarce, as there is only so much land. As Mark Twain once said, “Buy land, they aren’t making it anymore.”
Food and shelter are the two most fundamental material human needs. They have intrinsic value, which means they can act as a hedge against inflation. Moreover, as cities grow, demand for real estate increases, since more people need more places to live, work, eat and shop. This is why real estate has historically appreciated in value over time and produced wealth for those who own it. Ironically, passive income is usually taxed at a lower percentage rate than active income, especially sheltered income from real estate.
The quality of real estate as an investment and is why one can start a company with an aim to democratize access to this largely inaccessible, high value asset class. Over a period of time, after a study of market around, it’s observed that most of the people could not invest in real estate the way they could invest in the stocks. Buildings are all around, and yet most people do not own any property – not even a fraction of one – except maybe their home.