Mark Moss breaks down four ways real estate builds wealth: leverage through mortgages, rental income from tenants, tax write-offs from depreciation, and appreciation. U.S. properties appreciate at about 5% annually, higher in markets like Nantucket. Tenants pay down your mortgage while you control a large asset with minimal cash.
4 components of the structure in that deal, the difference of the real estate deal versus the stocks. Okay, so number 1, we got the leverage. So the leverage is the abomination, the 30-year mortgage. The leverage is the debt, the margin that allows me to control more assets with a little bit. So with $100,000, I can control a $500,000 property. With $500,000, I control a $2.5 million property. So number 1, leverage. Okay, now the beauty of the leverage, especially the 30-year abomination mortgage, is I get fixed debt for 30 years. So, you know, I locked in some loans that were around 3% a few years ago. Today they're about 6%. But even at 6%, we have cost of living going up at 10% a year. But imagine over 10, 20 years what that payment becomes over time. So I get the benefit of inflation-destroyed debt. So the leverage partially gets wiped out by inflation, which is of course why the government wants so much of it. Okay, second, I get income. What does that mean? The tenants of my real estate property provide income, and they're the ones paying down the debt for me. So yes, I took on debt, I used leverage to do that. So I control more asset, but someone else pays it for me. When I bought the stocks, I just bought them, I owned 100% of them, but there was no leverage. And there was no one giving me additional money for that. Number 3, I get depreciation. And depreciation, what happens with that is back to those tax incentives that she talks about. how terrible those are. The tax incentives allow me to now write off part of my income, keeping more of my hard-earned money. Now, if I take some of that hard-earned money that I would typically give to the IRS at the end of the year, and I get to keep it and I get to reinvest that over the 30-year loan, then that really increases my returns. Then I get appreciation. That means the property goes up in value over time. The median US appreciation number is about 5% right now. Obviously, a trophy property like Nantucket is going to do much better, but it's market by market. The US is about 5%. Okay, and again, that's Nantucket. So that's 4 components: the leverage, the income, the depreciation, the appreciation— 4 buckets.
