The benefits of real estate investing, according to an expert

  • Dion McNeeley lived paycheck to paycheck before he started investing in real estate.
  • His investment philosophy is inspired by Charlie Munger, who advises to focus on a single asset.
  • McNeeley prefers real estate investing because of the cash flow it generates and the tax advantages.

Dion McNeeley believes that anyone can use real estate investing to build wealth, no matter where you come from financially.

“I got to 40 and never had $1,000 in the bank,” the 51-year-old real estate investor told Insider. “I didn’t inherit any money. I had a lot of bad debts. I didn’t make a lot of money and I was a single parent with three kids. I can’t imagine many more obstacles.”

It took McNeeley two years to save for his first investment property, a duplex he bought in the Tacoma, Washington area in 2013. Two years later, he closed his second spot.

Today, McNeeley owns 16 units across seven properties in Washington State. He makes six-figure profits on rental income every year and considers himself financially independent. Insider verified McNeeley’s assets under management with documentation.

His investment philosophy is simple and inspired by Warren Buffett’s business partner, Charlie Munger. “He says you get rich by focusing on one asset,” said McNeeley, who focuses on real estate. “And once you are wealthy, you diversify to protect your wealth.”

While McNeeley is now worth nearly $2 million, he said, he doesn’t consider himself wealthy enough to start branching out yet.

“If I was diversified now — if I had money locked away in a retirement account, or if I was playing with crypto or individual stocks — I would still have to work,” McNeeley said. He still works full-time at a commercial truck driving school, but only because he likes the job, not because he needs an income.

Once his net worth gets closer to $5 million, he will start experimenting with other investments, like crypto and stocks, he said. But for the moment, he is perfectly content to invest in real estate. He prefers the durable asset aspect of real estate to the precarious nature of the stock market and other types of investing for four main reasons.

1. Cash flow. “Real estate makes me money now that I can spend, save or invest,” McNeeley explained. money to invest to obtain this cash flow. “

Real estate requires an upfront investment, but it’s manageable and can result in significant cash flow, said McNeeley, who saved $20,000 over two years to buy her first investment property. During his last nine years in real estate, “I invested, out of my own pocket, about $320,000,” he estimated. “My cash flow last year was $128,000. That’s the difference between stocks and real estate.”

dion mcneeley

McNeeley owns 16 units across seven properties in Washington State.

Courtesy of Dion McNeeley

2. Appreciation. When you buy real estate, “you gain appreciation on about four times what you invest,” explained McNeeley, who prefers to put 20 to 25 percent down when buying a new property. Think of it this way: “If I invest $100,000 in a $400,000 duplex and its value goes up 10%, I don’t make $10,000 on my $100,000; I make $40,000 on the $400,000.”

Plus, “it’s debt that can’t be called – it’s 30-year fixed rate debt,” he added. Whereas “if a stock goes down, all of a sudden you have to pay the debt. That doesn’t happen in real estate.”

3. Repayment of principal. Another advantage of investing in real estate is the repayment of capital – each month when his tenants pay rent, they pay off a significant portion of the principal of his mortgage. Of course, McNeeley must also use this money to cover other real estate expenses, but part of it goes to paying off his loan.

He described it as “a savings account that grows every month without me having to actively put money into it.”

4. Tax advantages. “I never paid a dime in tax on rental income,” McNeeley explained. “If you’re in a regular W-2 job, the government takes taxes, then you get paid; if you own rental property, you can use depreciation and write-offs where you typically don’t pay money in taxes. .”

McNeeley is such a big believer in real estate investing that he emptied his 401(k), where his money was invested in the stock market, and directed that money toward buying another rental property. Most retirement accounts penalize you with fees if you withdraw funds before age 59½, but McNeeley withdrew money in 2020 when fees were waived due to the coronavirus pandemic, he said. he explained, “They waived fees up to $100,000. I had about $88,000 in there.”

“Now, instead of that money being locked up for another 10 years, it pays me,” he added. “This property is getting a 17% cash return, four times appreciation of what I invested, and a return of principal every month.”

Although he says he “hates retirement accounts,” he still contributes enough to his 401(k) each year to earn the full company game. “It makes sense because it’s like free money but, in general, I don’t want to tie up money in a retirement account when I can put it in a rental property.”

McNeeley says anyone can accomplish what he did with patience and a long-term vision. Start by learning about real estate investing, he advised. Read books, listen to podcasts, and contact successful investors.

Passion is also important: “At the end of the day, what matters is that we invest in something that we are passionate about. We are more likely to stick to a plan in which we are emotionally invested. So if real estate doesn’t excite anyone, it’s not the best.” As for him, however, “If someone gave me stocks, I would sell them and buy real estate.”

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