Home ownership is a staple of the American Dream — one that more people than ever before are realizing. Analysts believe new home sales hit a record high in 2004, and signs are good that 2005 will be another banner year for the housing market.

What is fueling this incredible surge in home buying? In large part, it is the incredibly low interest rates we’ve seen over the past several years.

In 2003, the average rate on a benchmark 30-year mortgage was 5.83%, the lowest in recorded history. Home buyers in 2004 fared nearly as well, with that average increasing to just 5.84%. To get a sense of just how remarkable these rates are, compare 2004 with 1984, when the annual average rate of a fixed-rate mortgage hovered around 13.75%.

Considering the fact that even the slightest change in the interest rate translates into hundreds of dollars monthly and tens of thousands of dollars over the life of a mortgage, it is easy to see how people whose incomes would have made real estate investing an impossibility 20 or even 10 years ago have been able to successfully embrace this dream. And considering all the benefits of investing in real estate — from tangibles such as tax incentives and equity buildup to intangibles like security and a sense of pride and accomplishment — it is also easy to see why.

But in spite of the rosy statistics, millions of financially able Americans still haven’t taken the profitable plunge into the real estate market. Why not? Because of uncertainty, outdated ideas, and a simple lack of knowledge about what it takes — and doesn’t take — to invest in real estate.

To set the record straight, we called on speaker, author, and world-renowned real estate expert Dr. Dolf de Roos. Since the age of 17, while still a student, Dr. de Roos began to build a real estate portfolio that today is worth multiple millions of dollars. Through the hugely popular public seminars he has conducted all over the world and his many published works, including the New York Times bestseller Real Estate Riches, he has earned a worldwide reputation as a phenomenally savvy real estate investor — one with the unique ability to communicate his knowledge and insights to help others quickly and easily build wealth through real estate. Let’s turn now to Dr. Dolf de Roos.

Dolf, could you share with us the story of how you got started in the business of investing in real estate?

My parents believed to do well financially you had to study hard and get a degree. It’s not as if they purposely tried to give me misleading advice — that was true in their generation. And it was so drummed into me that I didn’t even think about it; I just went off to university.

But during my very first week there, I looked around me at the people with the degrees, the professors, the lecturers, the tutors, and they seemed anything but rich. And I thought, There is something wrong with this notion that I’ve been imbued with. So I took it upon myself to study what the rich had in common in hopes of emulating it and becoming wealthy myself.

The interesting thing was I could hardly find anything that they had in common. It wasn’t age, gender, or religious belief. It didn’t matter if you were the first born or the last born in the family, if you came from an immigrant family, a rich family, or a poor one, and it certainly had nothing to do with education.

I found only two things that the rich have in common. One is that almost without exception the rich have integrity. The second thing is that the rich tend to either make their money or hold their wealth in real estate. Upon that realization, at the age of 17, I decided to get into real estate. And by the time I earned my Ph.D., I had a substantial real estate portfolio and I almost didn’t need a job.

What is it about real estate that seems to make it such an attractive investment?

Real estate is extremely forgiving of mistakes. It’s difficult to make a bad real estate decision. Of course, it’s possible, but it’s also rare. Now, consider the stock market. Not only can most people cite someone who did poorly; most people have done poorly at some stage in their lives with stocks. In the ’87 stock market crash I learned that no matter how smart I thought I was with stocks, market forces could override that.

Now it’s possible that market forces can override real estate decisions, but in general, the real estate market tends to be far less volatile than the stock market (see graphs to left).

When most people think of investing in real estate, they think of people who have a lot of money to throw at a deal, like a Donald Trump. What about real estate for people who don’t have a lot of cash — the average income earner or average household? How does real estate work for them?

It’s true that if you have a lot of cash it is easier to buy real estate. Any fool with $20 million in the bank can easily buy a $10 million property. So the challenge is what if you only have $5,000 or $10,000? Can you still invest in real estate? And the answer is “Yes, easily.”

I’m always astounded at the volume of people who say, “But you need money to get into real estate.” And yet those same people will invest in the stock market, even though to buy stocks you actually have to come up with the cash!

If you want to buy $100,000 worth of stocks you will need $100,000 cash to give to the stock broker before he will place the order. However, if you want to buy a $100,000 property, you don’t need $100,000 cash. Banks and financial institutions, lending institutions, the insurance companies, and superannuation funds are bending over backwards to give you money to buy real estate. There are even institutions that will lend 100% of the purchase price.

What’s more, if you bought $100,000 worth of stocks with $100,000 cash, the unfortunate truth is that when you bought that portfolio, it would be worth exactly $100,000 — no more, no less.

However, if you have a contract for $100,000, that property may actually be worth $120,000, $130,000, or $140,000. There are many reasons for such outstanding opportunities, and they happen every day.

It might be they’re in a divorce situation, or they’re moving town and they have to sell quickly. Or they’ve signed up to buy a new house; they need the proceeds from their current house to pay for the one they’re buying, and with three weeks left to go, the price starts to drop.

There are literally 101 reasons why people will sell a property at below its value, allowing you to make a profit with very little cash. And yet, if you had that same small amount of cash, how many stocks could you buy? Not many. Yet, this is where most Americans invest.

What about making money in real estate? Is selling the only way to turn a profit?

In my entire life I’ve only sold four properties that I’ve owned, and I have lost track of how many I’ve bought. You don’t need to sell to make your money. For example, if you buy a rental property for $100,000, even if it’s fully financed by the bank, and it doubles to $200,000, you don’t need to sell to get your $100,000 profit. In fact, if you did sell, you would have to pay capital gains tax and depreciation recapture tax, and you’d lose your income stream and further capital growth.

Instead, hang on to that property and refinance. Even if you get a modest 90% mortgage, you could pull out $180,000, which is $80,000 more than you had before. You don’t have to pay capital gains tax on the $80,000. You don’t have to pay depreciation recapture tax. In fact, you don’t have to pay any kind of tax on it. The interest on the $80,000 is tax deductible, and you’ve got a property worth more that’s generating more in rent – and the rent will keep on going up with inflation for the rest of your life. You still own an asset that’s appreciating in value. Plus, when it has doubled again and it’s worth $400,000, you refinance again.

So to clarify, Dolf, real estate is a long term investing strategy?

You’re right. It’s not instantaneous. You can’t buy a property today and then by Saturday night have $40,000. But you can buy a property today and have $40,000 of equity that you own instantly because someone sold it to you cheap. It is real; it’s just not in spendable cash at that point. Then as the years roll by, you start to get increases in rents, and the value of the building goes up, the appraisal goes up, your collateral goes up, your equity goes up. And then slowly you refinance and you start to pull money out.

People who need instant gratification should seek it elsewhere. But as far as building wealth is concerned, I personally know of nothing that is safer for the average person. I challenge anyone to take 100 people at random and teach them his or her wealthbuilding strategies, and I will take the same number and teach them real estate. It’s my contention that the 100 people investing in real estate on average will be better off than the 100 people doing hedge funds, future contracts, or anything else.

Now that’s not to say that certain people using hedge funds won’t make more than I’ll ever make in real estate. But I don’t think it’s as easy for the average person to do. Real estate is just so simple. The rules don’t really change. What worked 50 years ago still works the same today. The words are still the same; collateral still means the same as it meant so many years ago.

If you look at people who have bought just 10 properties over 10 years — that’s one a year for 10 years — they live a lifestyle of freedom. They can take annual vacations and buy the luxury items they desire. However, that is not usually the case for people who invested in most other things.

Dolf, what would be your final word of advice for someone thinking of investing in real estate?

The advice I’d give is, many things seem overwhelming at the beginning, and I often feel daunted by things I take on. There’s an old saying that courage does not mean having no fear. Courage means acting despite your fear. And it’s when you overcome something that it feels really good. When you sign your first contract on a property, it’s scary. You’re signing your name to more value of money than your net worth might be right now. And what if it all goes wrong, what if you go bankrupt, what if the place burns down, “what if” this, and “what if” that? But when you muster the courage, not only does it feel great once you’ve done it, it continues to feel great when it puts money in your bank account.

I’ll never forget my first deal. The first rent check I received covered more than the mortgage interest, mortgage principal, property taxes, insurance, and maintenance combined.

There was money left over, and I hadn’t worked for it. And all I could think of was, I’ve got to do this again and again and again. I challenge you to do the same and live the lifestyle of wealth and freedom that investing in real estate can provide.


Stocks and Real Estate (Total Value, Trillions of Dollars)

Over the last three decades, prior to the 1990s stock market boom, the total value of real estate owned by U.S. households was greater than the total value of corporate equities. Between 1996 and 2000, this trend reversed, with the value of equities growing to twice the value of real estate. However, during the stock boom, real estate continued to grow steadily, and in the past few years the real estate market has grown by nearly $2 trillion, while the stock market has lost over $6 trillion during the same period.

Percent Change in Annual Average Value

Since 1953, stock values typically fell sharply every few years, while the real estate market tends to change more gradually while always maintaining positive growth. And even during periods when stock values fell sharply, the total value of household real estate often increased.

Source: Research Reports, published by the American Institute for Economic Research


Are you investing your money into things that make you feel wealthy — cars, boats, clothes, and kitchen gadgets that inevitably decrease in value? Or are you investing your money into those things that increase in value — such as property — that will lead to your financial independence and an early retirement?

Source: Building Wealth Through Investment Property by Jan Somers and Dolf de Roos


“Housing analysts expect rates on 30-year, fixed mortgages, now about 5.8%, to remain under 7% through 2005 — with some expecting rates below 6.5%. Even if rates rise faster, the market should remain solid because demand outstrips supply in many areas.”

Source: USA Today, “Forecast for 2005: Mostly clear skies,” by Sue Kirchhoff and Barbara Hagenbaugh.


Property values tend to increase in cycles. In some years growth is nothing, while in others it may be as much as 40% or 50%. This diagram shows the sequence of events in economic cycles. Short term investors must pay attention to the timing of these cycles. Long term investors needn’t worry. These fluctuations even out.

Source: Building Wealth Through Investment Property by Jan Somers and Dolf de Roos

Dolf de Roos, Ph.D., began investing in property as an undergraduate and quickly discovered that real estate was better paying than any job he could get — and to this day he has never had a job. A classic baby boomer, he has made millions by building wealth through sound and savvy real estate investments. He leads public seminars throughout North America, New Zealand, Australia, Asia, and Europe, has trained real estate agents, and has written and published five bestselling property books, including New York Times bestseller, Real Estate Riches. Dolf is also both founder and chairman of Property Ventures Limited, an innovative property investment company with holdings ranging from highrise apartment buildings to high-end vineyards.

Wealth Magnet

Wealth Magnet

Learn more about Dolf de Roos and his bestselling, Property Investor’s School.