The Real Reason Wealthy Investors Buy So Much Real Estate

They are not buying it for near-term cash flow either.
They are playing a different game.

They buy real estate for the tax losses.

Real estate is the only place where you can put a million dollars to work and show a loss of five hundred thousand dollars or more on your tax return without losing a dollar of actual capital. That is the game. The wealthy are not empire building. They are using tax strategy. Once you see the math, it unlocks another gear in how fast you can grow your net worth.

I’m Brad Johnson, Managing Partner at Evergreen Capital.
We advise accredited investors on unique and tax efficient investments.
Our clients have deferred tens of millions in taxes using the exact strategies you are about to see.

Here is what we are covering today:

Our clients do not want to fix toilets. They do not want to manage Airbnbs. They do not want a side gig. They want the professional, passive version of real estate. The version that generates large paper losses, compounds wealth, and cuts their tax bill in a meaningful way.

Real estate can produce real economic income while showing a tax loss. The IRS allows you to depreciate a building as if it falls apart over 27.5 years. Everyone knows property usually appreciates. The tax code still lets you write it off. You get deductions for something that is increasing in value. Your profit is treated like an expense.

Then it gets better.

A cost segregation study breaks the building into components with shorter lives. Carpet, appliances and fixtures often fall into five year buckets. Land improvements fall into fifteen year buckets.

Bonus depreciation accelerates everything with a life of fifteen years or less into year one. Those components often account for a large portion of a building’s value. Combine that with leverage and the effect compounds.

You invest one million. The property may generate five hundred thousand to one million dollars of paper losses in year one. That is why wealthy investors like apartments, industrial, self storage and manufactured housing. They have strong cost segregation potential.

This is not a loophole. It is standard tax code.

If you are in a high bracket like California, a five hundred thousand dollar paper loss can mean roughly two hundred thousand dollars in immediate tax savings. That comes from an asset that is producing real value.

This is why wealthy investors are not obsessing over a five percent cash flow yield. Year one cash flow is small, taxable and irrelevant to high earners. We place their cash flow capital in other strategies that produce higher yields anyway.

What they care about is depreciation. Depreciation changes the slope of their wealth trajectory.

This is where most people get tripped up.

If you do not qualify as a real estate professional, these are passive losses. They offset passive gains only. That includes passive income from other properties and gains on passive business interests.

They do not offset W2 income or active business income.

This is why wealthy investors coordinate sales and purchases. They time passive gains with new passive losses. When done correctly, they defer taxes for long periods.

This is not a buy a duplex on Zillow strategy.

To do this correctly you need:

You do not need to become a landlord.


You do not need to qualify as a real estate professional.


You do not need a second job.

You need the right structure, the right deals and the right team.

Stocks cannot do this.


Index funds cannot do this.

Real estate lets you make money, show a loss, reduce taxes and compound faster.

This is not a one time trick. Treating it that way is a mistake.

The people who win take a long term approach. If you flip in three years, you hand everything back through depreciation recapture and capital gains.

The wealthy do something very different:

That loop repeats. Build losses. Defer gains. Refinance. Reinvest. Keep going. Real estate is a decades long tax strategy, not a short trade.

Wealthy investors are not buying real estate because they enjoy architecture. They buy it because the tax code rewards owners of productive assets.

Most advisors hand out the same generic playbook. That is not how the wealthiest investors operate.

None of this is tax, legal or investment advice, and the numbers here are simplified illustrations. The real work is sitting down with your CPA, attorney and advisor, mapping which of these moves actually fit your facts this year, and then executing a small number of big, coordinated plays before December 31.