Building Wealth Through Equity Like The Rich Do
February 13, 2018 By Larry Arth
Why is it that in today’s modern educated world that so many people are financially vulnerable? Very few families have any sort of financial security. We live in a culture where trading time for money is considered the norm and trying to get ahead requires more time for more money and very quickly your income ceiling has been maximized.
The problem with trading time for money is eventually your desire to work runs out. You reach your golden years. A time that life is supposed to be grand and you can finally enjoy life without the day-to-day grind of going to work to trade time for money.
You lose your job
I just got off the phone literally moments ago where a gentlemen has shelled out over $20,000 of his retirement funds to pay for radiation treatment for his colon cancer. His wife does landscaping and as they live in the frozen north her work is seasonal so currently they have very limited income.
He shared that his brother in law is out of work for a month due to a foot injury and they are now living with just one income. I hear these stories every day and in fact they prompted me to write this post today. We all have these experiences either personally or for people who are near and dear to us.
Fortunately there are better ways, ways that they simply do not teach us in school.
Multiple streams of income
For those of you who read, you may have read the Rich Dad Poor Dad series (if not I highly recommend them). In this book they talk about having multiple streams of income. The wealthy all have multiple streams of income. They do not have to worry if one stream of income is soft this month or perhaps disappears due to economic changes. They rely on the other streams of income to carry them through. This sounds pretty inviting doesn’t it?
This post is not about sharing all the ways you can make money there are indeed many avenues to explore that from Google University.
The passive income stream that made 90% of millionaires today
What I will share is a few thoughts on the income stream that has created more millionaires than any other income stream available.
Equity from real estate has created more millionaires than any other income stream.
While you are doing your daily task of earning income silently in the background equity can be generated. As you trade time for money equity may actually be making as much or more for you than your job is generating. It is able to do this because equity build up works 24/7. When you invest wisely equity build up is a 24/7 income generator. The best part is there are many ways to create equity.
Multiple ways to build equity:
- Sweat equity: buying property putting your own sweat (hard work) into improving the property for an increased value. My favorite as a child, I actually learned to enjoy sweating.
- Values play equity: basically the same as sweat equity without the sweat. You can buy a property and hire the rehab work done. This value play will increase your equity position without the sweat. This is my new favorite as I grow older and believe in working smarter instead of working harder..
- Acquisition equity: Experience tells you that when you buy the property correctly you will have equity day one. Essentially paying less for the property than it is currently worth.
- Make your money going in equity: Some refer to this as path of progress equity. As an example, you buy a property in the path of progress, with property values increasing as the demand for properties in the area rise, your equity also rises.
Equity buildup byway of debt reduction
The typical investor will buy an investment property with a mortgage. Each month the tenant makes a mortgage payment to you the landlord, you in turn use part of the rent payment to pay the mortgage.
Let’s assume for this conversation that $300 of that mortgage went to pay down the principle of the loan. This $300 dollars each month that pays down the loan goes into building up the equity you now have in the property. Let’s say the original loan was for $100K and now has a balance of $99,700. At the end of a full calendar year that is (12) $300 debt reductions payments totaling $3,600 per year in equity buildup.
This is money that is silently being added to your net worth.
Appreciation as a property appreciates in value. The national average for the past 50 years has been a 6% annualized appreciation. On this same $100k example, the appreciation would generate you $6,000 ($100K x 6% = $6,000). This is also money that is silently adding to your net worth.
Combining these two benefits together you realize a total of ($3,600 + $6,000-$8,600) in (silent) wealth building.
These of course are not all technical and dictionary real estate terms but they indeed go to illustrate how many different ways to build equity that you can engage in.
Building equity I believe is the easiest and most lucrative way to build wealth and it is the principle used by over 90 percent of the wealthy people today to build their lifestyle portfolios.