'It's huge leverage': Scott Galloway says real estate is 'the most tax-advantaged' investment you can make in the US, and offers tips to build your portfolio

“The brightest people in real estate will say if you really account for maintenance and upkeep, then real estate has not outperformed other asset classes,” New York University professor and finance expert Scott Galloway said on Steven Bartlett’s “The Diary of a CEO” podcast in July 2024.

But that hasn’t stopped the renowned entrepreneur from making “good money” from real estate investing and enjoying the process.

Here’s why Galloway likes real estate as an asset class — and how you can get your piece of the pie.

Tax advantages

Galloway described real estate as “the most tax-advantaged” investment you can make in the U.S.

“There are very few asset classes you can lever up four-to-one,” he said. “A 20% downpayment? I can’t buy $100 of Apple stock for $20! It’s huge leverage [and] the interest on that is tax deductible.”

Mortgage interest, property taxes and certain maintenance expenses are often tax deductible, helping homeowners or investors to reduce their overall tax liability. Also, if you hold onto your primary home for at least two years, you may qualify for capital gains tax exemptions.

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Despite the potential tax breaks, a mortgage is a huge undertaking — you need to have a clear picture of your finances before you delve into it. A financial advisor can help you out.

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Build your own real estate portfolio

Anyone with the time and means can build a real estate portfolio. But you do have to be somewhat strategic about where you invest in property.

Steven Bartlett shared some advice he received from his brother during the podcast: “If everybody is playing the game, the returns probably aren’t great from it.”

Galloway agreed.

“It goes back to sex appeal — too much capital going in,” he said. “When everyone’s trying to buy homes in a certain area, that usually means it’s probably getting overvalued and, like any other asset class, it can lose money.”

But even up against tricky market dynamics, Galloway is still a fan of investing in real estate.

“The reason I like it is because it is a form of forced savings,” he told Bartlett. Galloway noted much of the savings for baby boomers is tied to the equity in their homes.

Crowdfunding

Galloway’s insights into establishing a passive income stream through real estate might seem old school.

“Find a nice home or a rental unit that you can rent out or upgrade — maybe you’re handy,” he said. “Do that every few years and take advantage of the tax deduction and then roll into something bigger.”

But it’s easier said than done. Not only do you have to worry about downpayment and monthly mortgage payments, but you also have to remember the headaches that come with renting out your investment property.

New investing platforms are making it easier than ever to tap into the real estate market.

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