Real estate is not JUST for the rich
How real estate creates real wealth and the unbelievable tactic for starting your journey
While cleaning garages, I discovered a treasure map.
A kind, successful woman worked for decades as an HR consultant, eventually earning $600k per year—in the 1990s. That’s around $2M per year adjusted for inflation.
Yet, she would say her day job was not how she built “real wealth.”
She hired me one summer to organize her stuff.
In one of her garages, I saw an open house flyer that shocked me. It was for a beach house my ex-girlfriend and I would gawk at before surfing. We’d wonder what billionaire lived there.
I asked my older friend why she had the flyer.
She calmly answered, “Oh my, I miss that home. It was such a great investment too.”
I was bewildered.
She explained that not only did she get to enjoy living in a beach mansion for nearly a decade, but she profited millions of dollars when she sold it. She then walked me through her journey, mapping the path to treasure.
Real estate can be an asset, a store of wealth that grows over time. If you own an $8M property and sell it 6 years later for $12M due to rising market prices, you’re pocketing $4M (less any loan interest) just by holding it.
Real estate makes up about 60% of the world’s total assets, surpassing stocks, bonds, and other investment types combined. Home ownership is how most millionaires reached millionaire status.
A homeowners’ median net worth is 40 times higher than that of renters in the US. And investors now account for about 18-20% of home purchases in the U.S.
Investing in real estate isn’t just for the rich. What you don’t have in dollars, you can make up for in creativity and knowledge.
In this article, I’ll explain how real estate creates real wealth and share an absurdly powerful strategy you could use in college or shortly after.
How Real Estate Creates “Real Wealth”
My mentor, who bought that $8M beach house, didn’t have $8M in cash when she bought it.
Instead, she used other people’s money—borrowing $6M from the bank. That’s the beauty of debt in real estate.
Here’s how it works: The bank lends you a large sum of money, often up to 70-80% of the property price, and you pay it back slowly over time with interest. Interest is the cost of borrowing money—the bank charges you a percentage tax for every dollar you borrow.
This allows you to buy and hold valuable assets without needing all the cash upfront. Meanwhile, if the property value goes up, that extra value, or appreciation, is all yours when you sell.
In her case, by using a $6M loan, she got to enjoy her dream home and make millions in profit when she sold it years later. That’s leveraging debt: using borrowed money to help you invest and create wealth over time.
You’re probably thinking, “Cole, this is cool, but where the heck do I get $2M?”
You may not buy a beach mansion with your piggy bank, but you could do something else extraordinary.
What if I told you you could live with your friends for free, pay less in taxes, and get paid a large sum later for doing so?
Introducing the House Hack—the S-tier strategy for early real estate investing. When I first learned about it, it sounded too good to be true. But it’s legit, legal, and becoming commonplace among young, financially savvy people.
Below, I explain the three ways you can make money in real estate in the context of the perfect house hack:
1. Rental Income
Imagine buying a $500,000 property with only a 3.5% down payment. With a Federal Housing Administration (FHA) loan, this low down payment is possible.
To qualify for an FHA loan, the property must be your primary residence for at least one year.
You’ll need about $20,000 upfront (3.5% of $500,000) plus an estimated $5,000 in closing costs—totaling $25,000 to acquire the property. The bank covers the remaining 96.5% of the purchase price.
Assuming a 30-year fixed-rate mortgage with a 5% interest rate, your monthly mortgage payment (principal + interest) would be approximately $2,685.
Let’s say this property has three bedrooms, each of which can rent for $1,300 per month, generating $3,900 in total rental income.
For the first year, since you’ll occupy one room, you’ll collect $2,600 from renting out the other two—effectively covering the mortgage, so you’re living for free.
Because of the FHA loan, you must live in the place for one year. But once you move out and all rooms are rented, here’s the potential cash flow:
Monthly Cash Flow:
Rental Income: $3,900
Mortgage Payment: $2,685
Monthly Net Income: $3,900 - $2,685 = $1,215
This translates to a monthly income of $1,215 or an annual return of $14,580.
An initial $25,000 investment can generate steady cash flow. Barring any major repairs, the expenses like maintenance, property management, taxes, or insurance will typically total between $3-$7k/year.
So you could be generating $8k or more of passive annual income.
2. Appreciation and Sale
Now, suppose the property appreciates by an average of 3% per year. After 5 years, it would be worth approximately $580,000 (compounded annually).
If you sell at this value, here’s the breakdown:
Sale Price: $580,000
Remaining Loan Balance: ~$460,000 (early mortgage payments are interest-heavy and cover less of the principal)
Gross Profit from Sale: $580,000 - $460,000 = $120,000
After accounting for about $20,000 in interest paid over 5 years, you’d have roughly $100,000 in profit from the sale. For your total profit, add the sale profit to the rental profit over five years. We will assume the first year it merely pays for your rent:
$100,000 + ($8,000 x 4) = $132,000
If you did not invest and instead rented a room for $1,300/month for 5 years you’d pay $78,000. So your opportunity cost of not house hacking would be:
$132,000 + $78,000 = $220,000.
3. Tax Benefits
Financially savvy people often use real estate to not only build wealth but to protect it.
In a house hack, these benefits are especially valuable.
Depreciation: Depreciation lets you deduct part of the property’s value each year as “wear and tear.” Although real estate typically appreciates, the IRS lets you treat it as if it’s gradually losing value (27.5 years for residential properties). This deduction lowers the amount of rental income the government can tax, even though the property may be gaining value.
There are interesting ways you can apply this deduction to your ordinary income, so you could be keeping more of your primary paycheck if real estate is just a side hustle.
Mortgage Interest Deduction: The way that most loans are setup has the majority of the early monthly mortgage payments considered as payment toward the interest and not the principal as seen in the graph.
You can deduct this mortgage interest, reducing your taxable rental income. This deduction is especially helpful in the early years when interest makes up a larger portion of each payment. *Again, in some scenarios, you can deduct from your ordinary taxable income.
1031 Exchange: When you’re ready to sell, a 1031 exchange lets you reinvest the proceeds into a similar property and defer capital gains taxes. For house hackers, this means you could use your sale to upgrade to a larger investment property and keep having your money work for you before the government takes any of it.
Together, these benefits let you keep more of the rental income and sale profits, making real estate a savvy, tax-efficient way to build wealth.
If you were to have rented and not invested, you would have had a place to live and less obligation, but your monthly payments would be dollars down the drain. The opportunity cost would be even greater than ~$220,000 if you factor in the tax benefits!
Let’s get crazier.
You almost 10x’ed your initial investment of ~$25,000 in five years! But imagine taking the $220,000 of savings and profits from the first house hack as well as any other income you have and applying it to another property.
You could theoretically turn $250,000 into $2,500,000 of profit and savings if you used this strategy perfectly!!!
House hacking is powerful because it combines steady rental income, low FHA down payment, and great tax advantages—letting you live for free while creating real wealth.
Finding cash flowing properties has become increasingly difficult in big cities. Creativity is needed more than ever for early investors. Do not expect the perfect property for a house hack to fall into your lap.
I hope this article inspires you to consider real estate’s role in your life as you build a brilliant portfolio.
I recently got my real estate license in preparation for my first home purchase. You don’t need a license to be a great investor but it’s relatively easy to get, and it offers powerful advantages I’ll share in my next newsletter.
Subscribe for free to learn why I got my license, if you should to, and other fascinating financial tactics!
P.S. This morning, I checked Zillow on that beach mansion my friend sold at $12M. Based on comparable properties, it’s now worth ~$25M—one of her biggest regrets was not holding onto it!