Mark Moss explains why home equity is wasted capital. A $1 million home appreciating 10% yearly generates $100k in growth regardless of how much equity you've built up. Billionaires and family offices redeploy that equity into higher-return assets like rental properties or Bitcoin to create multiple streams of compound growth.
Okay. So now you understand the 4 ways that we're using real estate to build wealth, but let's hone in on one area. So I talked about these tenants right here and these tenants are building up my equity position. Now what's interesting about equity is most people focus on return on investments, ROI, or maybe what they're actually measuring is return on my asset. So if my home goes up by 10% a year, on a million-dollar home, I've made $100,000. Congratulations. But what they don't take into consideration is what the billionaires think about, the family offices. What we focus on is something called return on my equity. So how much equity do I have? And what is the return on the capital or the equity that I have? Now, as these tenants are building up my equity position, that's growing from $100,000 equity, and then it's $200,000, and it's $500,000 of equity sitting there. Well, most people fail to realize because they've never thought about building up their return on equity is they fail to realize is that if I have $500,000 in this million-dollar property, if this million-dollar property goes up by 10%, I'm earning $100,000 in compound growth on the, on the asset. But that 10% is going to grow whether this $500,000 is there or not. Having $100,000 or $200,000 or $500,000 in equity has no effect over what the compound annual growth rate is on the property. So someone who's focused on return on equity, again, a billionaire, a family office person, someone like me, I'd go, huh, I have $500,000 here that what I'm— is what I'm calling dormant or lazy capital. It's lazy. It's only doing one job or it's doing no jobs. So what I could do is I could take some of this money, $200,000, $300,000, $400,000 of this, and I could take this and I could buy another asset. I could buy another real estate property. I could buy some Bitcoin. I could buy the NASDAQ, but I could now take— let's, let's call this $300,000 and put it onto Bitcoin. And now this Bitcoin is going up at, let's call it, 30% a year. So now this, this home is still $1 million, it's still going up at 100% a year whether that money's there or not. But now my equity is growing two assets, a second asset at the same time.
