The Benefits of Real Estate Investing, According to an Expert

  • Dion McNeeley was living paycheck-to-paycheck before he started investing in real estate.
  • His investment philosophy is inspired by Charlie Munger, who advises focusing on one asset.
  • McNeeley prefers real estate investing because of the cash flow it generates and the tax benefits.

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

“I made it to 40 without ever having $1,000 in the bank,” the 51-year-old property investor told Insider. “I didn’t inherit money. I had a lot of bad debt. I wasn’t making a lot of money and was a single parent with three kids. I can’t imagine many more barriers.”

It took McNeeley two years to save up for his first investment property, a duplex that he purchased in the Tacoma, Washington area in 2013. Two years later, he closed on his second place.

Today, McNeeley owns 16 units across seven properties in Washington state. He earns six-figure profits from rental income each 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 wealthy 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 worth close to $2 million today, he said, he doesn’t consider himself wealthy enough to start diversifying yet.

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

once his

net worth

is closer to $5 million, he’ll start experimenting with other investments, like crypto and stocks, he said. But for now, he’s perfectly content investing in real estate. He prefers the hard asset aspect of real estate over the precarious nature of the stock market and other types of investing for four main reasons.

1. The cash flow. “Real estate pays me cash flow now that I can spend, save, or invest,” explained McNeeley. “Stocks don’t — unless I’m selling part of the stocks or have a dividend stock portfolio, which takes a lot of money to invest to get that 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 his first investment property. Over his past nine years in real estate, “I’ve invested, out of my own pocket, about $320,000,” he estimated. “My cash flow from last year was $128,000. That’s how big a difference there is between stocks and real estate.”

dion mcneeley

McNeeley owns 16 units across seven properties in Washington state.

Courtesy of Dion McNeeley

2. The appreciation. When you buy real estate, “you’re gaining appreciation on about four times what you invest,” explained McNeeley, who prefers to put between 20 and 25% down when buying new property. Think about it this way: “If I invest $100,000 into a $400,000 duplex and it goes up 10% in value, I don’t gain $10,000 on my $100,000; I gain $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. The principal pay down. Another benefit of investing in real estate is principal pay down — each month when his tenants pay rent, they are paying down a significant chunk of his mortgage principal. Of course, McNeeley also has to use that money to cover other property expenses, but a portion goes to paying off his loan.

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

4. The tax benefits. “I’ve never paid a penny in rental

income tax

,” explained McNeeley. “If you work a regular W-2 job, the government takes taxes and then you get paid; if you own rental properties, you get to use depreciation and write-offs to where you generally don’t pay any money in tax.”

McNeeley believes so strongly in real estate investing that he emptied his 401(k), where his money was invested in the stock market, and directed that money towards buying another rental property. Most retirement accounts penalize you with a fee if you withdraw funds before age 59 ½, but McNeeley pulled money out in 2020, when fees were waived due to the coronavirus pandemic, he explained: “They waived the fee up to $100,000. I had about $88,000 in there.”

“Now, instead of that money being locked away for another 10 years, it’s paying me,” he added. “That property is getting a 17% cash-on-cash return, appreciation on four times what I invested, and principal pay-down every month.”

While he says that he “hates retirement accounts,” he does still contribute enough to his 401(k) every year to earn the full company match. “It makes sense because it’s like free money but, in general, I don’t want to lock money up in a retirement account when I can put it into a rental property.”

McNeeley says that anyone can accomplish what he’s done with patience and a long-term view. Start by educating yourself on real estate investing, he advised. Read books, listen to podcasts, and reach out to successful investors.

Passion is also important: “Ultimately, what matters is that we invest in something that excites us. We are more likely to stick to a plan we are emotionally invested in. So if real estate doesn’t excite somebody, it’s not the best. ” As for him, though, “If somebody gave me stocks, I would sell them and buy real estate.”

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