# How I Found a 30-Year Wealth Secret That Beats Real Estate

### Forget Property. This Investment Strategy Will Make Millionaire

I believe that, in order to criticize something, you first need to immerse yourself deeply in it, understand how it works, and grasp the reasoning behind whether to invest in an asset or not.

Today, I want to talk about the **real estate sector**. I think it makes a lot of sense to focus on this type of asset since it’s where most of the global wealth is parked.

It’s a sector that people love to talk about because it’s part of our everyday lives. Everyone knows how it works. In fact, if we use renting as an example of a real estate investment, even a child could explain and understand it.

However, is it really as good an investment as people say?

Let’s dive into more detail to see which type of investment is more profitable.

First, I’d like you to understand—though you probably already know—that I’m no expert. However, I’ve spent more than 1,000 hours studying the topic, and like in investing, most of the main ideas tend to repeat themselves.

In fact, if you ask me where to start, I would clearly recommend the collection of books by **BiggerPockets**, which contain all the necessary information (I’ve read them all thoroughly).

Now, returning to our topic: which investment is more profitable, real estate or stocks?

This is a multifaceted issue. First, within real estate investing, there are many possibilities. For example, the famous **BRRR** strategy (Buy, Rehab, Rent, Refinance, Repeat), which basically consists of buying a property, renovating it, and refinancing it at a higher value than the combined cost of purchase and renovation.

Obviously, using strategies like these, the return can be close to infinite, but we’re talking about active work here, not a passive investment. It’s like working in an office for X hours: you get a return, but that doesn’t necessarily make it an investment.

Today, I want to focus on rental income. One factor that should be considered is the mortgage, which allows you to leverage. But, is everything as good as it seems? Let’s look at two scenarios:

**Option 1: Investing in a Property with a Mortgage**

**Assumptions:**

Property price: 300,000 dollars

Initial investment (20%): 60,000 dollars

Transfer Tax (TAX, 10%): 30,000 dollars (on the total value of the property, paid upfront)

Mortgage (80%): 240,000 dollars

Mortgage interest rate: 3%

Mortgage term: 30 years

Rental yield: 6% of the property’s value

Annual property appreciation: 2%

Maintenance costs: 1.5% of the property’s value annually

Annual rent increase: 2%

**Calculations:**

1. Total Initial Investment:

On top of the 20% for the purchase (60,000 dollars), you need to add the 10% for TAX (30,000 dollars), which brings the total initial investment to 90,000 dollars.

2. Mortgage:

Financing 80% of the property’s value (240,000 dollars) with a 30-year mortgage at 3% results in monthly payments of 1,012 dollars (12,144 dollars annually).

3. Rental Income:

The rental yield is 6% annually on the property’s value (300,000 dollars), resulting in annual rent of 18,000 dollars in the first year. This amount increases by 2% each year:

Year 1: 18,000 dollars

Year 2: 18,360 dollars

…

Year 30: 32,335 dollars

Total rental income over 30 years (with 2% annual increases): approximately 714,000 dollars.

4. Maintenance Costs:

Calculated at 1.5% annually of the property’s value (300,000 dollars), maintenance costs are 4,500 dollars in the first year, increasing by 2% annually.

Total maintenance costs over 30 years: approximately 179,000 dollars.

5. Final Property Value:

With an annual appreciation of 2%, the property’s value after 30 years will be approximately 543,408 dollars.

6. Net Gains:

Net rental income (rent minus mortgage and maintenance costs) over 30 years: around 335,000 dollars.

Final property value: 543,408 dollars.

Total accumulated after 30 years: 878,408 dollars (net rental income + property value).

#### Option 2: Investing in Index Funds

**Assumptions:**

Initial investment: 90,000 dollars (equivalent to the total initial investment in the property, including the TAX)

Annual return: 9% (compounded)

Dividends reinvested automatically

No funds withdrawn over 30 years

**Calculations:**

1. Compound Return:

With an initial investment of 90,000 dollars and a 9% annual compound return, the value after 30 years will be approximately 1,198,500 dollars.

#### Final Comparison and Conclusions

1. Property with Mortgage:

Total initial investment: 90,000 dollars (60,000 dollars for the 20% down payment + 30,000 dollars for the TAX).

Net rental income: approximately 335,000 dollars over 30 years.

Estimated property value: 543,408 dollars after 30 years.

Total accumulated: **878,408 dollars**.

2. Index Funds:

Initial investment: 90,000 dollars.

Value after 30 years (9% compound return): **1,198,500 dollars**.

As you can see, despite leveraging in the real estate market, it’s not as profitable as it seems. Some might argue that owning a property in Manhattan would indeed be a great investment (much more profitable than 6%). Obviously, that’s true, just as investing in Nvidia might be a better investment than buying a specific house. So let’s compare apples to apples.

#### Scenario with Leverage in Index Funds

Now let’s consider an even more favorable scenario where we leverage **25%** in stocks (considering the interest on the borrowed money).

**Assumptions**:

Initial investment in stocks: 90,000 dollars

Leverage: 25% of the initial investment, i.e., a loan of 22,500 dollars

Loan interest: 5%

Stock index return rate: 9% annual compound return

Total invested: 112,500 dollars (90,000 dollars own capital + 22,500 dollars borrowed)

**Calculations**:

1. Compound Return:

Investing 112,500 dollars at a 9% compound return over 30 years will result in a value of approximately 1,497,625 dollars.

2. Interest Costs:

Annual interest on the 22,500 dollars loan at 5%: 1,125 dollars.

Over 30 years, total interest paid: 33,750 dollars.

3. Net Gains:

Final value of the investment: 1,497,625 dollars.

After deducting total interest: **1,463,875 dollars**.

**Final Comparison and Conclusions**

**1. Property with Mortgage:**

Total initial investment: 90,000 dollars.

Net rental income: approximately 335,000 dollars over 30 years.

Estimated property value: 543,408 dollars after 30 years.

Total accumulated:

**878,408 dollars.**

**2. Leveraged Index Funds:**

Total initial investment: 90,000 dollars (plus a loan of 22,500 dollars).

Value after 30 years (9% compound return on 112,500 dollars): 1,497,625 dollars.

Interest costs: 33,750 dollars.

Total accumulated after 30 years:

**1,463,875 dollars.**

#### Conclusion

As time goes on, one of the things I’m learning is that virtue (and money) can be found in inactivity. As Siddhartha said, **"I only know how to meditate, fast, and wait."**